Magyar Bancorp, Inc. 10-K

ITEM 1. Business Forward Looking Statements 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. 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 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. 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 I, Item 1A of this Annual Report on Form 10-K. General Magyar Bancorp, Inc. (the “Company”) is a Delaware-chartered corporation which owns 100% of the outstanding shares of common stock of Magyar Bank. At September 30, 2024, Magyar Bancorp, Inc. had consolidated assets of $951.9 million, total deposits of $796.7 million and stockholders’ equity of $110.5 million. Magyar Bancorp, Inc. has not engaged in any significant business activity other than owning all of the shares of common stock of Magyar Bank. 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 Bank is a New Jersey-chartered savings bank headquartered in New Brunswick, New Jersey that was originally founded in 1922. We conduct business from our main office located at 400 Somerset Street, New Brunswick, New Jersey, and our eight branch offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, Edison and Martinsville, New Jersey. The telephone number at our main office is (732) 342-7600 and our website is located at www.magbank.com. Information on our website is not and should not be considered a part of this Annual Report. 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 commercial real estate loans, residential mortgage loans, commercial business loans, Small Business Administration (“SBA”) loans, home equity loans, home equity lines of credit, construction and land loans and investment securities. 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 New Jersey Department of Banking and Insurance (“NJDBI”) and the Federal Deposit Insurance Corporation (“FDIC”). 2 Market Area 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. Most of the Bank’s customers are individuals and small to medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in the Bank’s markets could adversely affect the Bank’s borrowers, their ability to repay their loans and to borrow additional funds, and consequently the Bank’s financial condition and performance. The majority of the Bank’s loans are secured by real estate located in New Jersey. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. Competition 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, 2024, our market share of deposits was 1.52% and 0.38% in Middlesex and Somerset Counties, respectively. Our market share of deposits was 1.26% and 0.38%, respectively, at June 30, 2023. 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 Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing primarily in and around central and northern New Jersey. We primarily originate commercial real estate loans and residential mortgage loans, and to a lesser extent home equity lines of credit, commercial business and construction and land loans. Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan, at the dates indicated. September 30, 2024 2023 Amount Percent Amount Percent (Dollars in thousands) One-to four-family residential $ 246,201 31.5% $ 237,683 34.1% Commercial real estate 461,319 59.1% 389,134 55.8% Construction and land 22,722 2.9% 21,853 3.1% Home equity loans and lines of credit 24,728 3.2% 16,983 2.4% Commercial business 24,011 3.1% 30,194 4.3% Other 2,235 0.3% 2,359 0.3% Total loans receivable $ 781,216 100.0% $ 698,206 100.0% Net deferred loan costs (1,054 ) (806 ) Total loans receivable, net $ 780,162 $ 697,400 3 Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2024. 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 Home Equity Four-Family Commercial Construction Loans and Lines Commercial September 30, 2024 Residential Real Estate and Land of Credit Business Other Total (In thousands) One year or less $ 1,895 $ 25,196 $ 21,072 $ 2,619 $ 13,608 $ 4 $ 64,394 After one year through five years 2,307 52,820 458 763 1,914 58 58,320 After five years through fifteen years 37,162 91,846 148 4,292 4,739 20 138,207 After fifteen years 204,837 291,457 1,044 17,054 3,750 2,153 520,295 Total $ 246,201 $ 461,319 $ 22,722 $ 24,728 $ 24,011 $ 2,235 $ 781,216 The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2024 that are contractually due after September 30, 2025. Due After September 30, 2025 Fixed Adjustable Total (In thousands) One-to-four-family residential $ 142,900 $ 101,406 $ 244,306 Commercial real estate 55,131 380,992 436,123 Construction and land 104 1,546 1,650 Home equity loans and lines of credit 5,474 16,635 22,109 Commercial business 4,302 6,101 10,403 Other 63 2,168 2,231 Total $ 207,974 $ 508,848 $ 716,822 One-to Four-Family Residential 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, 2024, $246.2 million, or 31.5% of our total loan portfolio, consisted of residential mortgage loans. 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%. Generally, all 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. 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. At September 30, 2024, we had $144.0 million of fixed-rate residential mortgage loans, which represented 58.5% of our total residential mortgage loan portfolio. At September 30, 2024, our largest fixed-rate residential mortgage loan was $9.9 million. The loan was performing in accordance with its contractual repayment terms at September 30, 2024. At September 30, 2024, adjustable-rate residential mortgage loans totaled $102.2 million, or 41.5% of our total residential mortgage loan portfolio. The largest adjustable-rate residential mortgage loan was for $2.2 million. The loan was performing in accordance with its contractual repayment terms at September 30, 2024. Commercial Real Estate Loans. We also originate commercial real estate loans, most of which are secured by properties located in our primary market area. At September 30, 2024, $461.3 million, or 59.1%, 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, warehouses and retail facilities. We generally originate adjustable-rate commercial real estate loans with a maximum term of 25 years with 4 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. 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. Construction and Land Loans. We also originate construction and land acquisition loans for the development of one-to four-family homes, apartment buildings and commercial properties. Construction and land 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, 2024, our construction and land loans totaled $22.7 million, or 2.9% of total loans. Construction and land loans generally have a maximum term of 24 months. We provide financing for land acquisition, site improvement and hard construction costs. Land acquisition loans are limited to 50% of the sale price or appraised value of the land, whichever is lower. 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. Construction and land 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 and land 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 and land loan may exceed the value of the collateral. The advantages of construction lending are that the market is typically less competitive than standard mortgage products, the interest rate typically charged is a variable rate, which permits the Bank to protect against sudden changes in its costs of funds, the interest rate is typically higher to reflect the higher degree of credit risk, and the origination fees charged by the Bank to its customers can be amortized over the shorter term of a construction loan, typically, one to two years, which permits the Bank to recognize fees as income over a shorter period of time. Home Equity Loans and Lines of Credit and Other Loans. We originate home equity lines of credit secured by residences located in our market area. At September 30, 2024, these loans totaled $24.7 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%. 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. 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. 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. The loan amount is not to exceed 70% of the value of the stock securing the loan at any time. At September 30, 2024, stock-secured and other loans totaled $2.1 million, or 0.3% of our total net loan portfolio. Commercial Business Loans. We make commercial business loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized businesses. Our commercial business loans include term loans 5 and revolving lines of credit. At September 30, 2024, our commercial business loans totaled $24.0 million, or 3.1% of total loans. 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. Included in commercial business loans are Small Business Administration (“SBA”) 7(a) loans, on which the SBA provides guarantees of up to 75% 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 State of New Jersey. At September 30, 2024, $14.9 million, or 95.2% of the Company’s SBA loan balances, were to businesses located in the State of New Jersey. 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 weaker personal financial guarantees. In addition, many SBA 7(a) loans are for start-up businesses where there is no history of financial information. 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. We generally sell the guaranteed portions of these SBA loans in the secondary market. 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. Loans to One Borrower and Concentration of Loans. The maximum amount of loans to one borrower is limited by our Board-established loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital, or $17.2 million. At September 30, 2024, our largest loan was $13.2 million commercial real estate loan to finance the purchase and operation of a nursing and rehabilitation home in Edison, New Jersey. The loan was performing in accordance with its terms at September 30, 2024. The size of loans which the Bank can offer to potential borrowers is less than the size of loans which many of the Bank’s competitors with larger capitalization are able to offer. The Bank may engage in loan participations with other banks for loans in excess of the Bank’s legal lending limits. However, no assurance can be given that such participations will be available at all or on terms which are favorable to the Bank and its customers. The Bank has established policies to determine and monitor concentrations of credit risk and to maintain discipline in lending practices with a focus on portfolio diversification. Asset Quality We commence collection 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 collateral. 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 90 days. 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 and/or other collection efforts. 6 Non-Performing Assets. Non-accrual loans are loans on which the accrual of interest has ceased. Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more. Interest accrued, but not collected at the date a loan is placed on non-accrual status, is reversed and charged against interest income. Subsequent cash receipts are applied either to the outstanding principal or recorded as interest income, depending on management’s assessment of ultimate collectability of principal and interest. Loans are returned to an accrual status when the borrower’s ability to make periodic principal and interest payments has returned to normal (i.e., brought current with respect to principal or interest or restructured) and the paying capacity of the borrower and/or the underlying collateral is deemed sufficient to cover principal and interest. The following table sets forth the amounts and categories of our non-accrual assets at the dates indicated. September 30, 2024 2023 (Dollars in thousands) Non-accrual loans: One-to four-family residential $ 116 $ 386 Commercial real estate 116 2,224 Construction and land — 2,474 Total non-accrual loans $ 232 $ 5,084 Allowance for credit losses: $ 7,548 $ 8,330 Ratios: Total non-accrual loans to total loans 0.03% 0.67% Allowance for credit loss to total non-accrual loans 3253.45% 163.85% Allowance for credit loss to total loan receivable 0.97% 1.19% A loan is considered individually evaluated when it has been modified for a borrower in financial distress or when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Individually evaluated loans that have been modified are measured based on the present value of expected future discounted cash flows, the market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. We record cash receipts on individually evaluated 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. Delinquent Loans . The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated. Loans delinquent more than three months are generally classified as non-accrual loans. Loans Delinquent For 60-89 Days 90 Days and Over Total Number Amount Number Amount Number Amount (Dollars in thousands) At September 30, 2024 One-to four-family residential 2 $ 627 2 $ 116 4 $ 743 Commercial real estate — — 1 116 1 116 Home equity loans and lines of credit 1 236 — — 1 236 Total 3 $ 863 3 $ 232 6 $ 1,095 At September 30, 2023 One-to four-family residential 4 $ 568 2 $ 386 6 $ 954 Commercial real estate 1 116 1 2,224 2 2,340 Construction and land — — 2 2,474 2 2,474 Total 5 $ 684 5 $ 5,084 10 $ 5,768 7 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”) until sold. 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. We held three properties consisting of two residential single-family homes and one commercial real estate property totaling $3.7 million at September 30, 2024, an increase of $3.4 million, or 1035.7% from $328 thousand at September 30, 2023. Allowance for Credit Losses Financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses (“ACL”) reflects management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ACL on Loans. The Company maintains its ACL on loans at a level that management believes to be appropriate to absorb estimated credit losses as of the date of the Consolidated Balance Sheet. The ACL is a valuation reserve established and maintained by charges against income. Loans, or portions thereof, are charged-off against the ACL when they are deemed uncollectible. The ACL is an estimate of expected credit losses that considers our historical loss experience, the weighted average expected lives of loans, current economic conditions and forecasts of future economic conditions. The determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans. The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles. The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and, therefore, should be individually assessed. We individually evaluate loans that meet the following criteria: (1) when it is determined that foreclosure is probable, (2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, or (3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Credit loss estimates are calculated based on the following three acceptable methods for measuring the ACL: (1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are reduced to consider expected disposition costs when appropriate. A charge-off is recorded when the estimated fair value of the loan is less than the loan balance. ACL on Unfunded Loan Commitments. The Company estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Bank. The ACL on unfunded loan commitments is included in accounts payable and other liabilities in the Company’s Consolidated Balance Sheets and is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur, the amount of funding that will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The following table sets forth activity in our allowance for credit losses on loans for the years indicated. 8 September 30, 2024 2023 (Dollars in thousands) Balance at beginning of year $ 8,330 $ 8,433 Effect of adopting ASU 2016-13 (1,032 ) — Net charge-offs (recoveries): One-to four-family residential (68 ) (4 ) Commercial business — 488 Total net charge-offs (recoveries) (68 ) 484 Provision for credit losses 182 381 Balance at end of year $ 7,548 $ 8,330 Ratios: Net charge-offs (recoveries) to average loans outstanding -0.01% 0.07% Allowance for credit loss to total loans receivable 0.97% 1.10% Allocation of ACL on Loans. The following table sets forth the ACL on loans allocated by loan category and the percent of the allowance to the total allowance at the dates indicated, as well as additional information with respect to net loan charge-offs by category. The ACL on loans 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. At of For the Year Ended September 30, 2024 At of For the Year Ended September 30, 2023 % of Net Charge- % of Net Charge- Loans Net off to Average Loans Net off to Average to Total Charge-off Loans to Total Charge-off Loans Amount Loans (Recovery) Outstanding Amount Loans (Recovery) Outstanding (Dollars in thousands) One-to four-family residential $ 755 31.5% $ (1 ) —% $ 1,259 34.1% $ (3 ) -% Commercial real estate 5,334 59.1% — —% 5,277 55.8% — -% Construction and land 624 2.9% (65 ) -0.3% 472 3.1% — -% Home equity loans and lines of credit 30 3.2% — —% 207 2.4% (1 ) -% Commercial business 805 3.1% (2 ) -0.01% 939 4.3% 488 1.5% Other — 0.3% — —% 2 0.3% — -% Unallocated — —% — —% 174 —% — -% Total allowance for credit losses $ 7,548 100.0% $ (68 ) 0.0% $ 8,330 100.0% $ 484 0.1% Investments Our Board of Directors has adopted our Investment Policy. 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. 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 $5.0 million per transaction individually or $10.0 million per transaction jointly. Investment transactions in excess of $10.0 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 debt securities. In addition, we may invest in equity securities subject to certain limitations and not in excess of Magyar Bank’s Tier 1 capital. 9 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. The analysis must consider the effect of an investment or sale on our risk-based capital and prospects for yield and appreciation. Portfolio Maturities and Yields. The maturities and weighted average yields of the investment debt securities portfolio and the mortgage-backed securities portfolio at September 30, 2024 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. The weighted average yield is determined using a yield calculated from the contractual interest rate adjusted for the amortization/accretion of premium/discount paid to purchase the security, if any, expected to be recognized during its average life. Yields on tax-exempt obligations have been computed on a tax-equivalent basis. More Than One More Than Five One Year Year Through Years Through More Than September 30, 2024 or Less Five Years Ten Years Ten Years Yield Yield Yield Yield Obligations of U.S. government agencies: Mortgage backed securities - residential —% —% —% 3.40% Mortgage backed securities - commercial —% —% 5.82% 5.38% Obligations of U.S. government-sponsored enterprises: Mortgage-backed securities-residential —% 4.22% 1.89% 1.84% Debt securities 0.82% 1.99% 1.00% —% Private label mortgage-backed securities-residential —% —% 7.05% —% Obligations of U.S. states and political subdivisions —% 1.59% 1.78% —% Corporate securities —% 2.98% 9.00% —% Sources of Funds General. Deposits, 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. Deposits. Our deposits are generated primarily from customers within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts, retirement accounts and certificates of deposit. 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. At September 30, 2024, we had $29.6 million in brokered 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. The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated. 10 September 30, 2024 2023 Weighted Weighted Average Average Deposit Type Balance Percent Rate Balance Percent Rate (Dollars in thousands) Demand accounts $ 132,837 16.67% 0.00% $ 188,550 24.96% 0.00% Savings accounts 52,853 6.63% 0.63% 62,168 8.23% 0.54% NOW accounts 146,744 18.42% 2.88% 115,182 15.25% 1.67% Money market accounts 304,588 38.23% 2.45% 284,885 37.71% 3.01% Certificates of deposit 146,674 18.41% 4.03% 92,725 12.27% 3.03% Retirement accounts 12,978 1.63% 1.73% 11,943 1.58% 2.19% Total deposits $ 796,674 100.00% 2.28% $ 755,453 100.00% 1.84% At September 30, 2024 and 2023, the aggregate deposits in amounts greater than $250 thousand, which is the maximum amount for federal deposit insurance, were $380.0 million and $429.9 million, respectively. The estimated amounts of deposits that were neither insured nor collateralized were $114.7 million and $109.3 million at September 30, 2024 and 2023, respectively. 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 certificates of deposits with individual account balances exceeding $250 thousand at September 30, 2024. September 30, 2024 2023 (In thousands) Maturity Period: Three months or less $ 5,060 $ 1,576 Over three through six months 9,672 3,234 Over six through twelve months 7,838 2,702 Over twelve months 4,159 8,989 Total $ 26,729 $ 16,501 At September 30, 2024, $99.2 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. Subsidiary Activities The Company's only subsidiary is the Bank. The Bank holds three subsidiaries as described below. 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. 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 main 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 Corporation offers Magyar Bank customers and others a complete range of non-deposit investment products and 11 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, 2024 we employed 91 full-time employees and 10 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees. 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, 2024, 35% of our current staff had been with us for ten years or more. SUPERVISION AND REGULATION General 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 DIF 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”), the rules and regulations of the Federal Reserve Bank (the “FRB”) under the BHCA 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. 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. are summarized below. 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. Loans-to-One-Borrower Limitations. 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. A savings bank may lend an additional 10% of the bank’s capital funds if secured 12 by collateral meeting the requirements of the New Jersey Banking Act. Magyar Bank currently complies with applicable loans-to-one-borrower limitations. Dividends. 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” 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 FDIC 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 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 Capital Requirements. 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 ratio, and a Tier 1 capital to total assets leverage ratio. 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. 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. 13 At September 30, 2024, Magyar Bank’s common equity Tier 1 capital to risk-based assets ratio was 14.75%, total capital to risk-based assets ratio was 15.85%, and Tier 1 capital to total assets leverage ratio was 11.11%. At September 30, 2023, Magyar Bank’s common equity Tier 1 capital to risk-based assets ratio was 14.97%, total capital to risk-based assets ratio was 16.22%, and Tier 1 capital to total assets leverage ratio was 11.11%. Prompt Corrective Action. Federal bank regulatory authorities are required to take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the applicable statute establishes five capital categories. 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%. 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. Federal Home 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 Agency. 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, 2024, Magyar Bank was in compliance with these requirements. Enforcement. The FDIC 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, unsafe or unsound practices or non-compliance with agency conditions or agreements. Deposit Insurance. The DIF of the FDIC insures deposits at Federal Deposit Insurance Corporation insured financial institutions such as Magyar Bank generally up to a maximum of $250 thousand per separately insured depositor. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments. Institutions deemed to be less risky pay lower rates while institutions deemed riskier pay higher rates. Assessment rates (inclusive of possible adjustments) currently range from 2.5 to 32 basis points of each institution’s total assets less tangible capital. Insurance 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. Brokered Deposits. Applicable law and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, upon application to and a waiver from the FDIC, “adequately capitalized.” Less-than-well-capitalized banks also are subject to restrictions on the interest rates that they may pay on deposits. The characterization of deposits as “brokered” may result in the imposition of higher deposit assessments on such deposits. The FDIC’s brokered deposit regulations provide a limited exception for reciprocal deposits for banks that are well managed and well capitalized (or adequately capitalized and have obtained a waiver from the FDIC as mentioned above). Under the limited exception, qualified banks are able to exempt from treatment as “brokered” deposits up to $5 billion or 20% of the institution’s total liabilities in reciprocal deposits. 14 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 FRB. An affiliate includes, among other things, a company that controls, is controlled by, or is under common control with an insured depository institution, such as Magyar Bancorp, Inc. In general, “covered transactions,” as defined by these authorities, between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements. In this regard, covered transactions between an insured depository institution and its affiliates are limited to 10% of the institution’s capital stock and surplus for transactions with any one affiliate, and 20% of the institution’s capital stock and 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 for a savings bank to engage in a credit transaction with them. In addition, “covered transactions” with affiliates must be on terms and conditions consistent with safe and sound banking practices, and generally may not involve low-quality assets. Transactions with affiliates must generally be on terms and under circumstances that are substantially the same, or at least as favorable to the institution, as comparable transactions involving non-affiliates. Magyar Bank is currently 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. Community Reinvestment Act. 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 neighborhoods. 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. In 2023, the FDIC, the FRB, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years will be an “intermediate bank.” The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test. The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. We received an “Outstanding” CRA rating in our most recently completed federal examination, which was conducted by the FDIC in 2022. The Bank Secrecy Act and USA PATRIOT Act . The Bank Secrecy Act (“BSA”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”) require Magyar Bank to implement a compliance program to detect and prevent money laundering, terrorist financing, and illicit crime. Together, the BSA and USA PATRIOT Act require Magyar Bank to implement internal controls, conduct customer due diligence, maintain records, and file reports. The USA PATRIOT Act also required 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. 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 the BSA, USA PATRIOT Act, and regulations implemented thereunder. Cyber Security . The federal banking agencies have adopted rules providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents. Specifically, the new rules require a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours after, the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred. Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector. Service providers are required under the rule to notify affected banking organization customers as soon as possible when the 15 provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours. Consumer Protection . Magyar Bank and Magyar Bancorp are subject to federal and state fair lending laws. 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. In addition, Magyar Bank and Magyar Bancorp are subject to other federal and state laws designed to protect consumers and prohibit unfair, deceptive or abusive business practices, including the Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003, the Gramm-Leach Bliley Act, the Truth in Lending Act, 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 and servicing loans and providing other services. Further, the Consumer Financial Protection Bureau has broad authority 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. 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 purposes. 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 entities controlled by 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 member 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 greater of $25 thousand or 2.5% of the bank’s unimpaired capital and surplus, and in no event more than $100 thousand. 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 the greater of $25 thousand or 5% of the bank’s unimpaired capital and surplus. Generally, loans to an insider’s related interests 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 16 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 Savings banks, such as Magyar Bank, are authorized to borrow from the Federal Reserve Bank “discount window.” Magyar Bank is deemed by the FRB to be generally sound and thus is eligible to obtain secondary credit from its FRB. 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. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act 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 this Act and its implementing regulations, and we review and document such policies, procedures and systems to ensure continued compliance. Holding Company Regulation Federal Regulation. Magyar Bancorp, Inc. is regulated as a bank holding company. Bank holding companies are subject to examination, regulation and periodic reporting under the BHCA, as administered by the FRB. Bank holding companies are generally subject to consolidated capital requirements established by the FRB. Bank holding companies under $3.0 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 required 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. 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 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. 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. 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. In connection with the mutual-to-stock conversion of Magyar Bancorp, MHC, “eligible account holders” and “supplemental eligible account holders” received an interest in liquidation accounts maintained by the Company and the Bank in an aggregate amount equal to (a) Magyar Bancorp, MHC’s ownership interest in the Company’s total stockholders’ equity as of the date of the latest Statement of Balance Sheet included in the offering prospectus for the conversion, plus (b) the value of the net assets of Magyar Bancorp, MHC as of the date of the latest Statement of Balance Sheet of Magyar Bancorp, MHC before the consummation of the conversion (excluding its ownership of the Company). The Company and the Bank hold the liquidation accounts for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain deposits in the Bank after the conversion. The liquidation accounts are intended to preserve for eligible account holders and supplemental eligible account holders who continue to maintain their deposit accounts with the Bank a liquidation interest in the residual net worth, if any, of the Bank (after the payment of all creditors, including depositors to the full extent of their deposit accounts) in the event of a liquidation of (a) the Company and the Bank or (b) the Bank . 17 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. 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. Acquisition of Magyar Bancorp, Inc. Under federal law and under the New Jersey Banking Act, no person may acquire control of Magyar Bancorp, Inc. without 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. Magyar Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. ITEM 1A. Risk Factors Not required for smaller reporting companies.