What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-12-19 compared with 2024-12-19 · 403 added, 437 removed, 72 unchanged (92% of the section changed)

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

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 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

million, or 5.5%, to $796.7 million and stockholders’ equity increased $5.8 million, or 5.5%, to $110.5 million during the year

ended September 30, 2024.

The Company’s net income

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, 2024 and 2023

Total Assets.

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.

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)

Discussion and Analysis of Financial Condition and Results of Operations

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.

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

the year ended September 30, 2025, the Company’s total assets grew $45.8 million, or 4.8%, to $997.7 million from $951.9 million

at September 30, 2024.

The increase was attributable to a $77.2 million increase in loans receivable, offset by an $18.5 million decrease

in total cash and cash equivalents, a $7.0 million decrease in investment securities, a $4.3 million decrease in bank owned life insurance

and a $1.6 million decrease in other real estate owned.

deposits increased $17.6 million, or 2.2%, to $814.3 million and stockholders’ equity increased $8.3 million, or 7.5%, to $118.8

million during the year ended September 30, 2025 compared with $796.7 million and $110.5 million for the year ended September 30, 2024,

respectively.

Company’s net income increased $2.0 million, or 25.4%, to $9.8 million during the year ended September 30, 2025 compared with net

income of $7.8 million for the year ended September 30, 2024 from higher net interest income, partially offset by higher provisions for

credit loss, other expenses and income tax expense.

fiscal year 2026, 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.

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.

of Financial Condition at September 30, 2025 and 2024

Total assets increased $45.8 million, or 4.8%, to $997.7 million compared with $951.9 million at September 30, 2024.

The increase was attributable to a $77.2 million increase in loans receivable, net of deferred loan costs, offset by an $18.5 million

decrease in total cash and cash equivalents, a $7.0 million decrease in investment securities, a $4.3 million decrease in bank owned

life insurance and a $1.6 million decrease in other real estate owned.

Total loans receivable increased $77.7 million, or 9.9%, to $858.9 million during the year ended September 30, 2025

from $781.2 million at September 30, 2024.

The growth during the year occurred in commercial real estate loans, which increased $71.9

million, or 15.6%, to $533.2 million, in construction and land loans, which increased $6.6 million, or 28.9%, to $29.3 million, and in

one-to four-family residential mortgage loans (including home equity lines of credit), which increased $3.3 million, or 1.2%, to $274.2

Offsetting these increases were declines in commercial business loans, which decreased $4.0 million, or 16.5%, to $20.1 million

and in other consumer loans, which decreased $116 thousand, or 5.2%, to $2.1 million.

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, 2025 and 2024:

September 30, 2025

September 30, 2024

(Dollars in thousands)

Owner-occupied

3 unchanged sentences

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:

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, 2025 and 2024:

September 30, 2025

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 $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 $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 $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 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.

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.

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.

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

of September 30, 2025 and 2024, non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based

capital were estimated at approximately 267% and 270%, 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.

asset quality with respect to commercial real estate loans has remained strong despite recent economic and market conditions.

As of September

30, 2025 and 2024, we had $0 and $116 thousand of non-performing commercial real estate loans, respectively.

Such amounts totaled 0.00%

and 0.03% of total commercial real estate loans as of September 30, 2025 and 2024, respectively.

non-performing loans increased $219 thousand, or 94.4%, to $451 thousand at September 30, 2025 from $232 thousand at September 30, 2024.

Non-performing loans consisted of four loans secured by one-to four family properties totaling $451 thousand.

The ratio of non-performing

loans to total loans was 0.05% at September 30, 2025 compared to 0.03% at September 30, 2024.

for Credit Losses.

The allowance for credit losses on loans increased $802 thousand to $8.4 million at September 30, 2025 compared

to $7.5 million at September 30, 2024.

The increase was attributable to provisions for credit loss totaling $653 thousand and net loan

recoveries totaling $149 thousand during the year.

For comparison, the Company recorded provisions for credit loss totaling $182 thousand

and net loan recoveries totaling $69 thousand during the year ended September 30, 2024.

At September 30, 2025, investment securities totaled $88.4 million, reflecting a $7.0 million, or 7.3%, decrease

from September 30, 2024.

Investment securities at September 30, 2025 consisted of $65.6 million in mortgage-backed securities issued

government agencies and U.S.

government-sponsored enterprises, $9.4 million in U.S.

government-sponsored enterprise debt securities,

$9.8 million in corporate notes, $3.4 million in municipal bonds and $174 thousand in “private-label” mortgage-backed securities.

Life Insurance.

Bank owned life insurance (“BOLI”) decreased $4.3 million, or 18.4%, to $19.0 million at September

30, 2025 from the surrender of policies totaling $5.0 million, partially offset by increases in the cash surrender value of the retained

policies totaling $673 thousand.

Company began restructuring $7.9 million of its BOLI portfolio in August 2024 to increase the yield on the portfolio to higher market

interest rates.

The portfolio restructure increased the crediting rate on the restructured BOLI policies from 2.24% (3.20% tax-equivalent

yield) to 4.67% (6.67% tax-equivalent yield).

Real Estate Owned.

Other real estate owned decreased $1.6 million, or 41.8%, to $2.2 million at September 30, 2025.

sold two properties totaling $1.8 million for a net gain of $229 thousand and reduced the carrying value on its remaining property through

a $57 thousand write down during the year ended September 30, 2025.

Total deposits increased $17.6 million, or 2.2%, to $814.3 million at September 30, 2025.

The growth in deposits during the year occurred

in certificates of deposit (including individual retirement accounts) which increased $50.3 million, or 31.5%, to $210.0 million, in

interest-bearing checking account balances, which increased $17.0 million, or 11.6% to $163.8 million, and in savings account balances,

which increased $1.6 million, or 3.0%, to $54.4 million.

Offsetting these increases were declines in money market account balances, which

decreased $35.6 million, or 11.7%, to $268.9 million and in non-interest checking account balances, which decreased $15.6 million, or

11.7%, to $117.2 million.

in the Company’s total deposits was an estimated $127.9 million that was not collateralized and exceeded the FDIC’s insurance

coverage limit of $250,000 at September 30, 2025 compared to $114.7 million at September 30, 2024.

Company’s deposit strategy in 2025 focused on retaining deposits and managing the overall cost of its interest-bearing liabilities.

As part of its strategy to increase deposits and lower its occupancy expense, the Company closed its branch office in Bridgewater, New

Jersey and opened a new retail branch office in Martinsville, New Jersey.

Borrowings increased $20.5 million, or 71.7%, to $49.1 million at September 30, 2025 from $28.6 million at September 30,

Long-term advances from the Federal Home Loan Bank of New York were utilized to match fund commercial real estate loan originations.

Stockholders’

2 unchanged sentences

The increase was attributable to the Company’s net income from operations totaling $9.8 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 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.

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.

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.

offset by $1.8 million in dividends paid and $844 thousand in share repurchases.

In addition, other comprehensive income and stock-based

compensation expense increased the Company’s equity by $1.2 million.

The Company’s book value per share increased to $18.34

at September 30, 2025 from $16.98 at September 30, 2024.

of Operating Results for the Years Ended September 30, 2025 and 2024

The Company’s net income increased $2.0 million, or 25.4%, to $9.8 million during the year ended September 30,

2025 compared with $7.8 million for the year ended September 30, 2024 from higher net interest income, partially offset by higher provisions

for credit loss, other expenses and income tax expense.

Earnings per share increased to $1.57 for the year ended September 30, 2025 from

$1.23 for the year ended September 30, 2024.

Interest and Dividend Income.

Net interest and dividend income increased $3.9 million, or 14.0%, to $31.9 million during the

year ended September 30, 2025 compared to $28.0 million for the year ended September 30, 2024.

Company’s net interest margin increased 20 basis points to 3.34% for the year ended September 30, 2025 from 3.14% for the year

ended September 30, 2024.

The increase was attributable to a $63.9 million, or 7.2%, increase in the average balance of interest-earning

assets to $954.6 million for the year ended September 30, 2025 from $890.7 million for the year ended September 30, 2024,

Balance Sheet.

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

the years ended September 30, 2025 and 2024.

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

interest-bearing liabilities.

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, 2025 or 2024.

Years Ended September 30,

Interest Income/

Average Balance

Interest Income/

(Dollars In Thousands)

20 unchanged sentences

Net interest margin (6)

Average interest-earning assets to

average interest-bearing liabilities

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

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

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

(4) Includes interest-bearing checking and money market accounts.

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

Average interest-earning assets to average interest-bearing liabilities

average balance of loans receivable, net includes non-accrual loans.

income and yield are calculated using the Company’s 21% federal tax rate.

passbook savings, money market passbook and club accounts.

interest-bearing checking and money market accounts.

certificates of deposits and individual retirement accounts.

(6) Calculated

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

Rate/Volume Analysis.

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.

The rate column

shows the effects attributable to changes in rate (changes in rate multiplied by average volume).

The volume column shows the effects

attributable to changes in volume (changes in average volume multiplied by prior rate).

The net column represents the sum of the prior

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately,

based on the changes due to rate and the changes due to volume.

There were no out-of-period adjustments excluded from the table below

The rate column shows the effects attributable to changes in rate (changes in rate multiplied by average volume).

The volume column shows

the effects attributable to changes in volume (changes in average volume multiplied by prior rate).

The net column represents the sum

of the prior columns.

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been

allocated proportionately, based on the changes due to rate and the changes due to volume.

There were no out-of-period adjustments excluded

from the table below

September 30,

11 unchanged sentences

Total interest-bearing liabilities

Increase (decrease) in tax equivalent

net interest income

Change in tax-equivalent basis adjustment

Increase (decrease) in tax equivalent net interest income

Increase in net interest income

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

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

(3) Includes interest-bearing checking and money market accounts.

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

Interest and Dividend

(1) Calculated

using the Company’s 21% federal tax rate.

passbook savings, money market passbook and club accounts.

interest-bearing checking and money market accounts.

certificates of deposits and individual retirement accounts.

and Dividend Income.

Interest and dividend income increased $6.1 million, or 12.6%, to $54.7 million for the year ended September

30, 2025 from $48.6 million for the year ended September 30, 2024.

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

$7.9 million, or 22.4%, to $43.1 million for the year ended September 30, 2024 from $35.2 million for the year ended September 30, 2023,

while the average balance of loans increased $65.5 million, or 9.8%, to $734.4 million from $668.9 million.

The average yield on such

loans increased 60 basis points to 5.87% at September 30, 2024 from 5.27% for the year ended September 30, 2023 from higher market interest

Interest earned on investment

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, 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.

expense increased $10.3 million, or 99.3%, to $20.6 million for the year ended September 30, 2024 from $10.3 million for the year ended

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

increased $63.9 million, or 7.2%, to $954.6 million from $890.8 million, while the yield on such assets increased 28 basis points to

5.73% for the year ended September 30, 2025 from 5.45% for the year ended September 30, 2024.

income on loans increased $6.8 million, or 15.8%, to $49.9 million for the year ended September 30, 2025 from $43.1 million for the year

ended September 30, 2024, while the average balance of loans increased $79.1 million, or 10.8%, to $813.5 million from $734.4 million.

The average yield on such loans increased 27 basis points to 6.14% at September 30, 2025 from 5.87% for the year ended September 30,

2024 from higher interest income on loan originations and on adjustable-rate commercial term loans repricing higher.

earned on investment securities, including interest earned on deposits but excluding FHLBNY stock, decreased $670 thousand, or 12.8%,

to $4.6 million for the year ended September 30, 2025 from $5.2 million for the year ended 2024.

The decrease was attributable to a nine-basis

point decrease in the average yield on investment securities and interest earned on deposits to 3.32% from 3.41%, and $15.7 million decrease

in the average balance of investment securities and interest earning deposits to $138.4 million from $154.1 million during the year ended

September 30, 2025.

The average balance of interest-bearing liabilities increased $130.7 million, or 24.8%, to $657.9 million from $527.3

million between the two periods while the average cost on such interest-bearing liabilities increased 117 basis points to 3.13% for the

year ended September 30, 2024 from 1.96% for the year ended September 30, 2023.

Higher market interest rates were primarily responsible

for the increase in the cost of the Company’s interest-bearing liabilities for the year ended September 30, 2024.

The average balance of interest-bearing

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 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

Interest expense increased $2.2 million, or 10.7%, to $22.8 million for the year ended September 30, 2025 from $20.6

million for the year ended September 30, 2024.

The average balance of interest-bearing liabilities increased $91.0 million, or 13.8%,

to $748.9 million for the year ended September 30, 2025 from $657.9 million for the year ended September 30, 2024, while the average

cost on such interest-bearing liabilities decreased eight basis points to 3.05% for the year ended September 30, 2025 compared with 3.13%

for the year ended September 30, 2024.

Lower short-term market interest rates were primarily responsible for the lower cost of the Company’s

interest-bearing liabilities for the year ended September 30, 2025.

average balance of interest-bearing deposits increased $84.6 million, or 13.5%, to $713.7 million for the year ended September 30, 2025

from $629.1 million for the year ended September 30, 2024 while the average cost on such interest-bearing deposits decreased nine basis

points to 3.05% from 3.14%.

As a result, the cost of interest-bearing deposits increased $2.0 million, or 10.3%, to $21.7 million for

the year ended September 30, 2025 compared with $19.7 million for the year ended September 30, 2024.

expense on borrowings increased $182 thousand, or 20.9%, to $1.1 million for the year ended September 30, 2025 from $872 thousand for

the year ended September 30, 2024.

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 $1.1 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.

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

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

asset-liability management, we seek to manage our exposure to interest rate risk by originating and retaining adjustable-rate loans in

the residential, construction and commercial real estate loan portfolios, by using alternative funding sources, such as advances from

the FHLBNY, to “match fund” longer-term residential and commercial mortgage loans, and by originating and retaining variable-rate

home equity and short-term and medium-term fixed-rate commercial business loans.

We also offer a commercial loan swap product that allows

the Bank to receive floating-rate interest loan payments while its borrowers pay a fixed rate of interest on their loans.

increased money market account deposits as a percentage of our total deposits.

Money market accounts offer a variable rate based on market

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

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.

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.

The average cost of borrowings decreased 2 basis points to 3.00% for the year ended September 30,

2025 from 3.02% for the year ended September 30, 2024 while the average balance of those borrowings increased $6.3 million to $35.2 million

for the year ended September 30, 2025 from $28.9 million the prior year.

for Credit Losses.

The provision for credit losses increased $312 thousand, or 346.7%, to $402 thousand for the year ended September

30, 2025 compared with $90 thousand for the year ended September 30, 2024.

In addition to the provisions, the Company recorded $149 thousand

and $69 thousand in net loan recoveries for the year ended September 30, 2025 and 2024, respectively.

increase in provisions for credit loss for the year ended September 30, 2025 resulted from growth in the Company’s loan portfolio,

specifically in higher expected loss rate segments such as commercial real estate and commercial construction loans.

While total loan

growth was lower for the current fiscal year period compared to our 2024 fiscal year, the provisions increased comparatively, due to

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 during the prior year period.

the increase in provision for credit loss for loans was a $251 thousand reduction in the Company’s allowance for credit loss for

unfunded construction loan commitments, which declined by $9.3 million to $5.9 million at September 30, 2025 from $15.2 million at September

Other income increased $100 thousand, or 2.8%, to $3.7 million during the year ended September 30, 2025 compared with

$3.6 million for the year ended September 30, 2024.

Company’s service charges increased $304 thousand, or 26.8%, to $1.4 million during the year ended September 30, 2025 compared

with $1.1 million for the year ended September 30, 2024 from higher commercial loan prepayment fees, loans fees earned and late charges.

Income on bank owned life insurance increased $240 thousand, or 55.4% to $673 thousand during the year ended September 30, 2025 compared

with $433 thousand for the year ended September 30, 2024 from the restructure of $7.9 million in policies beginning in the 2024 fiscal

In addition, the Company recorded $179 thousand in interest rate swap fees compared with none for the prior year.

these increases were lower net gains from the sale of assets.

The Company’s gains on other real estate and SBA loans were $229

thousand and $1.1 million, respectively, during the year ended September 30, 2025 compared with $1.3 million and $599 thousand, respectively,

during the year ended September 30, 2024.

Other expenses increased $1.0 million, or 4.9%, to $21.4 million from $20.4 million for the year ended September 30,

2024 due primarily to higher compensation and occupancy expenses.

and employee benefit expenses increased $893 thousand, or 7.6%, due to annual merit increases, higher medical insurance costs and higher

incentive plan accruals.

In addition, occupancy expenses increased $188 thousand, or 5.7%, to $3.5 million, due to lease termination

expenses related to the closure of the Bank’s Bridgewater office during the year.

offsetting these increases were lower professional and data processing expenses, which declined $89 thousand and $71 thousand, respectively,

due to lower collection costs for non-performing loans and one-time credits used to offset core processing fees.

Income tax expense increased $732 thousand, or 22.1%, to $4.0 million for the year ended September 30, 2025 from

$3.3 million for the year ended September 30, 2024.

The increase was attributable to higher pre-tax income, which increased $2.7 million,

or 24.4%, to $13.8 million during the year ended September 30, 2025 compared with $11.1 million for the year ended September 30, 2024.

of Market Risk

The majority of our assets and liabilities are monetary in nature.

Consequently, our most significant form of market risk is interest

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

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

and interest rate risk position.

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 asset-liability management, we seek to manage our exposure to interest rate risk by originating and retaining

adjustable-rate loans in the residential, construction and commercial real estate loan portfolios, by using alternative funding sources,

such as advances from the FHLBNY, to “match fund” longer-term residential and commercial mortgage loans, and by originating

and retaining variable-rate home equity and short-term and medium-term fixed-rate commercial business loans.

We also offer a commercial

loan swap product that allows the Bank to receive floating-rate interest loan payments while its borrowers pay a fixed rate of interest

on their loans.

We have also increased money market account deposits as a percentage of our total deposits.

Money market accounts offer

a variable rate based on market indications.

By following these strategies, we believe that we are well-positioned to react to changes

in market interest rates.

Interest Income Analysis.

The table below sets forth, as of September 30, 2025, 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.

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.

Modeling changes in net interest income requires 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

Interest rates

Change in Interest rates

(Decrease) in NII Year 1

2 unchanged sentences

(Dollars in thousands)

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

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.

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, 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.

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%

of total deposits.

If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits

and FHLBNY advances.

Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than

we currently pay on the certificates of deposit (including individual retirement accounts and brokered certificate deposit accounts) due

on or before September 30, 2025.

We believe, however, that based on past experience a significant portion of our certificates of deposit

(including individual retirement accounts and brokered certificate deposit accounts) will remain with us.

We have the ability to attract

and retain deposits by adjusting the interest rates offered.

Our primary investing activities

are the origination of loans and the purchase of investment securities.

We originated $161.1 million in loans and purchased $12.5 million

of investment securities during the year ended September 30, 2024.

Comparatively, we originated $188.5 million in loans and purchased

$6.6 million of investment securities during the year ended September 30, 2023.

Financing activities consist

primarily of activity in deposit accounts and FHLBNY advances.

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

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 $28.6 million and $29.5 million at September

30, 2024 and 2023, respectively.

FHLBNY advances have primarily been used to fund loan demand.

In addition to borrowings,

the Bank has the ability to raise deposits on the brokered market or through deposit listing services.

At September 30, 2024, the Bank

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”).

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.

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

tax-free income through cash surrender value accumulation.

We have minimized our credit exposure by choosing carriers that are highly

rated and limiting the concentration of any one carrier.

The investment in bank-owned life insurance has no significant impact on our

capital and liquidity.

Off-Balance Sheet Arrangements

and Aggregate Contractual Obligations

an instantaneous uniform change in interest rates at all maturities.

and Capital Resources

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 and Liability Committee is responsible for establishing and monitoring our liquidity

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

contingencies.

We seek to maintain Day 1 available liquidity of at least 25% of non-contractual funding, defined as total deposits, less

brokered deposits, collateralized municipal deposits, and any other contractual funding outstanding.

At September 30, 2025, our Day 1

availability was 46.6% of non-contractual funding.

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 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

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, 2025, cash and cash equivalents totaled $7.1 million compared with $25.6 million

at September 30, 2024.

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

$21.2 million at September 30, 2025 compared with $15.6 million at September 30, 2024.

September 30, 2025, we had the ability to borrow $319.9 million from the FHLBNY compared with $272.3 million at September 30 2024.

At September 30, 2025, we had an aggregate of $49.1 million in advances outstanding and $135.0 million in municipal letters of credit

outstanding with the FHLBNY leaving $164.1 million as our remaining borrowing capacity.

We also had the ability to borrow $77.5 million

from the FRBNY at September 30 2025 compared with $9.1 million at September 30 2024.

The Company did not have any borrowings outstanding

with the FRBNY at September 30, 2025 or 2024.

September 30, 2025, we had $49.1 million in loan origination commitments outstanding and $80.7 million in unused lines of credit to borrowers.

Certificates of deposit due within one year of September 30, 2025 totaled $80.6 million, or 9.90% of total deposits.

If these deposits

do not remain with us, we will be required to seek other sources of funds, including replacement deposits and FHLBNY advances.

on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates

of deposit (including individual retirement accounts and brokered certificate deposit accounts) due on or before September 30, 2026.

We believe, however, that based on past experience a significant portion of our certificates of deposit (including individual retirement

accounts and brokered certificate deposit accounts) will remain with us.

We have the ability to attract and retain deposits by adjusting

the interest rates offered.

primary investing activities are the origination of loans and the purchase of investment securities.

We originated $162.7 million in

loans and purchased $11.3 million of investment securities during the year ended September 30, 2025.

Comparatively, we originated $161.1

million in loans and purchased $12.5 million of investment securities during the year ended September 30, 2024.

activities consist primarily of activity in deposit accounts and FHLBNY advances.

We experienced a net increase in total deposits of

$17.6 million, or 2.2%, to $814.3 million for the year ended September 30, 2025 compared with a net increase in total deposits of $41.2

million, or 5.46%, to $796.7 million for the year ended September 30, 2024.

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.

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 and FRBNY, which provide an additional source of funds.

In addition to borrowings, the Bank

has ability to raise deposits on the brokered market or through deposit listing services.

At September 30, 2025, the Bank held $57.3

million in brokered deposits and $24.0 million from national deposit listing services.

Bank is subject to various regulatory capital requirements, (see “Supervision and Regulation-Federal Banking Regulation-Capital

Requirements”).

As of September 30, 2025, Magyar Bank’s Tier 1 capital as a percentage of the Bank’s average assets

was 11.41% and the total qualifying capital as a percentage of risk-weighted assets was 15.79%.

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

Policies are purchased to

insure the lives of 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 tax-free income through cash surrender value accumulation.

We have minimized our credit exposure by choosing

carriers that are highly rated and limiting the concentration of any one carrier.

The investment in bank-owned life insurance has no

significant impact on our capital and liquidity.

Sheet Arrangements and Aggregate Contractual Obligations

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

6 unchanged sentences

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

Contractual Obligations.

In the ordinary course of our operations, we enter into certain contractual obligations.

Such obligations include operating leases for

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.

Such obligations include

operating leases for premises and equipment.

Accounting Policies

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 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.

for Credit Losses.

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 date.

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

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.

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

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

optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and

the related allowance determined.

The 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.

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

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.

evaluation has a specific and general component.

The specific component relates to loans that are delinquent or otherwise identified

as having increased non-performance risk 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.

the historical loss experience of each category, 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 credit losses.

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.

and Qualitative Disclosures About Market Risk

required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis