Magyar Bancorp, Inc. 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview 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. Our results of operations depend primarily on our net interest income, which is the difference between the interest we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our net interest income is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, the timing of the placement of interest-earning assets and interest-bearing liabilities, and the prepayment rate on our mortgage-related assets. Other factors that may affect our results of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities. During 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. Total 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. 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 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. Throughout 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. 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, 2025 and 2024 Total Assets. 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. Loans Receivable. 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 million. 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. 21 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, 2025 and 2024: September 30, 2025 September 30, 2024 Amount Percent Amount Percent (Dollars in thousands) Owner-occupied Retail $ 43,440 8.1 % $ 41,718 9.0 % Hotel/Motel 75,380 14.1 % 42,438 9.2 % Professional 34,328 6.4 % 35,341 7.7 % Office 17,563 3.3 % 10,934 2.4 % Restaurant 23,409 4.4 % 18,743 4.1 % Other 39,722 7.4 % 28,243 6.1 % Total owner-occupied $ 233,842 43.9 % $ 177,417 38.5 % Non-owner occupied Retail $ 85,574 16.0 % $ 84,435 18.3 % Multi-family 95,794 18.0 % 86,676 18.8 % Professional 17,514 3.3 % 18,972 4.1 % Office 36,053 6.8 % 39,064 8.5 % Restaurant 7,943 1.5 % 8,060 1.7 % Hotel/Motel 2,526 0.5 % 2,566 0.6 % Other 53,967 10.1 % 44,129 9.6 % Total non-owner occupied $ 299,371 56.1 % $ 283,902 61.5 % Total commercial real estate loans $ 533,213 100.0 % $ 461,319 100.0 % The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio (“LTV”). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons including, but not limited to, payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at September 30, 2025 and 2024: September 30, 2025 September 30, 2024 Number of Number of LTV range Loans Amount Loans Amount (Dollars in thousands) 0%-25.0% 129 $ 54,594 114 $ 45,522 25.01%-50.0% 129 163,280 120 111,699 50.01%-60.0% 79 114,311 71 123,684 60.01%-70.0% 109 147,882 94 118,379 70.01%-75.0% 24 33,244 32 47,611 75.01%-80.0% 8 17,856 7 13,188 > 80.0% 2 2,046 1 1,236 Totals 480 $ 533,213 439 $ 461,319 As 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. 22 Our 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. Total 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. Allowance 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. Investment Securities. 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 by U.S. 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. Bank-Owned 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. The 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). Other Real Estate Owned. Other real estate owned decreased $1.6 million, or 41.8%, to $2.2 million at September 30, 2025. The Company 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. Deposits. 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. Included 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. The 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. 23 Borrowed Funds. Borrowings increased $20.5 million, or 71.7%, to $49.1 million at September 30, 2025 from $28.6 million at September 30, 2024. Long-term advances from the Federal Home Loan Bank of New York were utilized to match fund commercial real estate loan originations. Stockholders’ Equity. Stockholders’ equity increased $8.3 million, or 7.5%, to $118.8 million at September 30, 2025 from $110.5 million at September 30, 2024. The increase was attributable to the Company’s net income from operations totaling $9.8 million, partially 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. Comparison of Operating Results for the Years Ended September 30, 2025 and 2024 Net Income. 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. Net 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. The 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, Average 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. 24 Years Ended September 30, 2025 2024 Average Balance Interest Income/ Expense Yield/Cost (Annualized) Average Balance Interest Income/ Expense Yield/Cost (Annualized) (Dollars In Thousands) Interest-earning assets: Interest-earning deposits $ 45,078 $ 1,920 4.26 % $ 58,557 $ 3,037 5.19 % Loans receivable, net (1) 813,509 49,920 6.14 % 734,402 43,107 5.87 % Securities Taxable 89,957 2,597 2.89 % 92,147 2,149 2.33 % Tax-exempt (2) 3,370 73 2.17 % 3,370 73 2.17 % FHLBNY stock 2,718 211 7.78 % 2,306 220 9.52 % Total interest-earning assets 954,632 54,721 5.73 % 890,782 48,586 5.45 % Noninterest-earning assets 52,373 49,938 Total assets $ 1,007,005 $ 940,720 Interest-bearing liabilities: Savings accounts (3) $ 53,750 $ 372 0.69 % $ 57,147 $ 352 0.62 % NOW accounts (4) 487,643 14,733 3.02 % 441,853 14,700 3.33 % Time deposits (5) 172,295 6,651 3.86 % 130,061 4,673 3.59 % Total interest-bearing deposits 713,688 21,756 3.05 % 629,061 19,725 3.14 % Borrowings 35,202 1,054 3.00 % 28,871 872 3.02 % Total interest-bearing liabilities 748,890 22,810 3.05 % 657,932 20,597 3.13 % Noninterest-bearing liabilities 138,805 170,923 Total liabilities 887,695 828,855 Retained earnings 119,310 111,865 Total liabilities and retained earnings $ 1,007,005 $ 940,720 Tax-equivalent basis adjustment (15 ) (15 ) Net interest and dividend income $ 31,896 $ 27,974 Interest rate spread 2.68 % 2.32 % Net interest-earning assets $ 205,742 $ 232,850 Net interest margin (6) 3.34 % 3.14 % Average interest-earning assets to average interest-bearing liabilities 127.47 % 135.39 % (1) The average balance of loans receivable, net includes non-accrual loans. (2) Interest income and yield are calculated using the Company’s 21% federal tax rate. (3) Includes passbook savings, money market passbook and club accounts. (4) Includes interest-bearing checking and money market accounts. (5) Includes certificates of deposits and individual retirement accounts. (6) Calculated as annualized net interest income divided by average total interest-earning assets. 25 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 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, 2025 vs. 2024 Increase (decrease) due to Volume Rate Net (In thousands) Interest-earning assets: Interest-earning deposits $ (628 ) $ (489 ) $ (1,117 ) Loans 4,773 2,040 6,813 Securities Taxable (53 ) 501 448 Tax-exempt (1) - - - FHLBNY stock 35 (44 ) (9 ) Total interest-earning assets 4,128 2,007 6,135 Interest-bearing liabilities: Savings accounts (2) (22 ) 41 19 NOW accounts (3) 1,461 (1,427 ) 34 Time deposits (4) 1,606 372 1,978 Total interest-bearing deposits 3,045 (1,014 ) 2,031 Borrowings 188 (6 ) 182 Total interest-bearing liabilities 3,233 (1,020 ) 2,213 Increase (decrease) in tax equivalent net interest income $ 895 $ 3,027 $ 3,922 Increase in net interest income $ 3,922 (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 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 $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. Interest 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. 26 Interest 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. Interest Expense. 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. The 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. Interest 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. 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. Provision 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. The 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. Offsetting 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 30, 2024. Other Income. 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. The 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 year. In addition, the Company recorded $179 thousand in interest rate swap fees compared with none for the prior year. Offsetting 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. 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. Compensation 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. 27 Partially 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. 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. Management of Market Risk General . The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, which consist 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 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. 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. 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. Net 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. 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 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 Estimated Increase Change in Interest rates Estimated (Decrease) in NII Year 1 Estimated (Decrease) in NII Year 2 (Basis Points) (1) NII Year 1 Amount Percentage NII Year 2 Amount Percentage (Dollars in thousands) +200 $ 32,481 $ (2,464 ) -7.05 % $ 35,633 $ (965 ) -2.64 % Unchanged 34,945 - - 36,598 - - -200 36,946 2,001 5.73 % 36,363 (235 ) -0.64 % (1) Assumes an instantaneous uniform change in interest rates at all maturities. 28 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 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. 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 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. 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, 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. At 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. At 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. 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, 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. Our 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. Financing 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. 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 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. Magyar 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%. Bank-owned 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. 29 Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit, standby letters of credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by us. For additional information, see Note O “Commitments,” 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. 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 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. Due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for 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. 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. 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 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. 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 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. 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. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies. 30