Magyar Bancorp Inc.

Company Overview

Business Model: Magyar Bancorp, Inc. is a Delaware-chartered bank holding company that owns 100% of Magyar Bank, a New Jersey-chartered savings bank founded in 1922. Its principal business involves attracting retail deposits from the general public in Middlesex and Somerset Counties, New Jersey, and investing these funds, along with operational cash flows and wholesale funding, into a diversified loan portfolio. This portfolio primarily includes commercial real estate loans, residential mortgage loans, commercial business loans, Small Business Administration (SBA) loans, home equity loans and lines of credit, construction and land loans, and investment securities. Revenues are primarily generated from interest on loans and securities, supplemented by fees and service charges. The Company operates through its main office in New Brunswick, New Jersey, and seven branch offices across Middlesex and Somerset Counties.

Market Position: Headquartered in New Brunswick, New Jersey, Magyar Bancorp, Inc.'s primary deposit market is concentrated in Middlesex and Somerset Counties, New Jersey, while its lending market extends across all of New Jersey. The primary market area is characterized by an urban and suburban economy with a broad economic base, and Middlesex and Somerset Counties rank among the highest nationally in median household income. As of June 30, 2025, Magyar Bancorp, Inc. held a deposit market share of 1.39% in Middlesex County and 0.69% in Somerset County, compared to 1.52% and 0.38%, respectively, at June 30, 2024. The Company emphasizes building profitable customer relationships across all business lines while maintaining its community bank role.

Recent Strategic Developments: Magyar Bancorp, Inc. anticipates increasing its commercial real estate and commercial business loan portfolios in fiscal year 2026, alongside managing non-interest expenses to enhance profitability. In August 2024, the Company initiated a restructuring of $7.9 million of its Bank-Owned Life Insurance (BOLI) portfolio, which successfully increased the crediting rate on these policies from 2.24% (3.20% tax-equivalent yield) to 4.67% (6.67% tax-equivalent yield). Strategically, the Company closed its Bridgewater, New Jersey branch office and opened a new retail branch office in Martinsville, New Jersey, aiming to boost deposits and reduce occupancy expenses. Furthermore, on May 22, 2025, the Board of Directors authorized a fifth stock repurchase program, allowing for the repurchase of up to 5% of its outstanding shares, or up to 323,547 shares, for general corporate purposes.

Geographic Footprint: Magyar Bancorp, Inc. operates its main office in New Brunswick, New Jersey, and seven full-service branch offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Edison, and Martinsville, New Jersey. Its primary deposit market is concentrated in Middlesex and Somerset Counties, New Jersey, while its lending market encompasses the entire state of New Jersey. A significant portion of its loan portfolio, including 96.0% of SBA loan balances, is secured by real estate or made to businesses located within New Jersey.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 58.30%
• Operating Margin: 25.24%
• Net Margin: 17.84%

Investment in Growth:

• Capital Expenditures: $0.6 million
• Strategic Investments:
  • BOLI portfolio restructuring of $7.9 million in August 2024 to enhance yield.
  • Relocation of a branch office from Bridgewater, New Jersey to Martinsville, New Jersey to increase deposits and reduce occupancy costs.
  • Authorization of a fifth stock repurchase program to repurchase up to 323,547 shares.

Loan Portfolio Analysis

Magyar Bancorp, Inc. operates as a single reportable segment, with its primary business driver being its loan portfolio. The Company does not separately allocate expenses between commercial and retail operations, thus discrete financial information for sub-segments is not available.

Overall Loan Portfolio Performance:

• Total loans receivable increased by $77.7 million, or 9.9%, to $858.9 million in 2025 from $781.2 million in 2024.
• The allowance for credit losses on loans increased by $802 thousand to $8.4 million in 2025 from $7.5 million in 2024.
• Total non-accrual loans increased by $219 thousand, or 94.4%, to $451 thousand in 2025 from $232 thousand in 2024. The ratio of non-performing loans to total loans was 0.05% in 2025, up from 0.03% in 2024.

Commercial Real Estate Loans

Financial Performance:

• Revenue: Not separately disclosed.
• Growth: Increased by $71.9 million (+15.6% YoY) to $533.2 million, representing 62.1% of the total loan portfolio in 2025.
• Operating Margin: Not separately disclosed. Product Portfolio:
• Loans secured by five-or-more-unit apartment buildings, industrial properties, small office buildings, warehouses, and retail facilities.
• Generally adjustable-rate loans with maximum terms of 25 years and adjustable-rate periods every five years. Market Dynamics:
• Maximum loan-to-value (LTV) ratio of 75%.
• Non-owner occupied commercial real estate loans to total risk-based capital were approximately 267% in 2025, compared to 270% in 2024.
• Non-performing commercial real estate loans were $0 in 2025, down from $116 thousand in 2024. Sub-segment Breakdown (by occupied status):
• Owner-occupied: $233.8 million (43.9% of CRE loans)
• Non-owner occupied: $299.4 million (56.1% of CRE loans)

One-to Four-Family Residential Loans

Financial Performance:

• Revenue: Not separately disclosed.
• Growth: Decreased by $3.7 million (-1.5% YoY) to $242.5 million, representing 28.2% of the total loan portfolio in 2025.
• Operating Margin: Not separately disclosed. Product Portfolio:
• Residential mortgage loans, primarily held in portfolio and secured by properties in the primary market area.
• Fixed-rate residential mortgage loans totaled $145.0 million (59.8% of residential portfolio).
• Adjustable-rate residential mortgage loans totaled $97.4 million (40.2% of residential portfolio). Market Dynamics:
• Underwritten according to Federal Home Loan Mortgage Corporation (“Freddie Mac”) guidelines.
• Non-performing residential mortgage loans were $303 thousand in 2025, up from $116 thousand in 2024.

Construction and Land Loans

Financial Performance:

• Revenue: Not separately disclosed.
• Growth: Increased by $6.6 million (+28.9% YoY) to $29.3 million, representing 3.4% of the total loan portfolio in 2025.
• Operating Margin: Not separately disclosed. Product Portfolio:
• Loans for the development of one-to four-family homes, apartment buildings, and commercial properties.
• Offered to experienced local developers and individuals for personal residences. Market Dynamics:
• Generally have a maximum term of 24 months.
• Land acquisition loans limited to 50% LTV, site improvement loans to 100% of bonded costs, and construction loans to 75% of the lesser of contract sale price or appraised value.

Home Equity Loans and Lines of Credit

Financial Performance:

• Revenue: Not separately disclosed.
• Growth: Increased by $7.1 million (+28.5% YoY) to $31.8 million, representing 3.7% of the total loan portfolio in 2025.
• Operating Margin: Not separately disclosed. Product Portfolio:
• Home equity lines of credit secured by residences in the market area. Market Dynamics:
• Maximum combined (first and second mortgage liens) LTV ratio of 80%.
• Adjustable rates of interest, indexed to the prime rate, with terms up to 25 years.
• Non-performing home equity loans and lines of credit were $148 thousand in 2025, up from $0 in 2024.

Commercial Business Loans

Financial Performance:

• Revenue: Not separately disclosed.
• Growth: Decreased by $4.0 million (-16.5% YoY) to $20.0 million, representing 2.3% of the total loan portfolio in 2025.
• Operating Margin: Not separately disclosed. Product Portfolio:
• Term loans and revolving lines of credit for professionals, sole proprietorships, and small to mid-sized businesses.
• Includes SBA 7(a) loans, with $17.6 million (96.0%) to businesses in New Jersey. Market Dynamics:
• Maximum term of 25 years.
• Made with either adjustable or fixed rates of interest.
• SBA 7(a) loans provide guarantees of up to 75% (85% for loans under $150,000). The guaranteed portions of these loans are generally sold in the secondary market.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $0.8 million (2025) compared to $2.4 million (2024). The Company completed its fourth stock repurchase program on April 17, 2025, repurchasing 337,146 shares at an average price of $12.23. Under its fifth authorized program, 20,000 shares were repurchased in 2025.
• Dividend Payments: $1.8 million (2025) compared to $1.7 million (2024). The Company declared five dividends totaling $0.29 per share in 2025.
• Future Capital Return Commitments: The Company intends to continue paying a regular quarterly cash dividend and has authorized a fifth stock repurchase program to repurchase up to 5% (323,547 shares) of its outstanding shares.

Balance Sheet Position:

• Cash and Equivalents: $7.1 million (2025)
• Total Debt: $49.1 million (2025)
• Net Cash Position: -$42.0 million (Net Debt)
• Debt Maturity Profile (FHLBNY advances as of September 30, 2025):
  • Due within 1 year: $1.6 million
  • Due after 1 year through 5 years: $27.4 million
  • Due after 5 years through 10 years: $20.0 million
  • Total: $49.1 million

Cash Flow Generation:

• Operating Cash Flow: $10.4 million (2025)
• Free Cash Flow: $9.8 million (2025)

Operational Excellence

Production & Service Model: Magyar Bancorp, Inc. operates as a community financial services provider, focusing on attracting retail deposits and deploying these funds into a diverse loan portfolio. The Company emphasizes building profitable customer relationships across all business lines. It offers a range of deposit accounts, including demand, NOW, money market, savings, retirement, and certificates of deposit. Lending activities include originating and holding residential mortgages, commercial real estate loans, construction and land loans, home equity loans and lines of credit, and commercial business loans. The Company also generates revenue from fees and service charges and offers non-deposit investment products and financial planning services through Magyar Service Corporation.

Supply Chain Architecture: Key Suppliers & Partners:

• Wholesale Funding: Federal Home Loan Bank of New York (FHLBNY) - serves as a central credit facility for member thrift institutions, providing advances.
• Deposit Insurance: Federal Deposit Insurance Corporation (FDIC) - provides deposit insurance for customer accounts.
• Risk Management: Third-party financial institutions - used for offsetting interest rate swaps to minimize net risk exposure.
• Loan Review: External loan review company - conducts semi-annual reviews and assessments of the loan portfolio to ensure accurate risk ratings.

Facility Network:

• Headquarters: Main office located at 400 Somerset Street, New Brunswick, New Jersey, owned through Hungaria Urban Renewal, LLC.
• Branch Network: Seven full-service branch offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Edison, and Martinsville, New Jersey. Two branches are owned, and five are leased.
• Net Book Value of Premises & Equipment: $12.2 million (2025).

Operational Metrics:

• Liquidity: Day 1 available liquidity was 46.6% of non-contractual funding at September 30, 2025.
• Regulatory Compliance: Received a "Satisfactory" Community Reinvestment Act (CRA) rating in its most recently completed federal examination by the FDIC in 2025.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Branch Network: Operates seven full-service branch offices in Middlesex and Somerset Counties, New Jersey, serving as a primary channel for attracting retail deposits.
• Direct Sales: Engages in direct lending relationships with small to mid-sized businesses and individual consumers within central and northern New Jersey.
• Wholesale Deposit Channels: Utilizes brokered deposits and national deposit listing services to supplement funding, holding $57.3 million in brokered certificates of deposits and $24.0 million from national deposit listing services at September 30, 2025.
• Digital Presence: Maintains a corporate website (www.magbank.com).

Customer Portfolio: Enterprise Customers:

• Primary Focus: Small to mid-sized businesses and individual consumers residing primarily in central and northern New Jersey.
• Customer Concentration: The largest single loan outstanding at September 30, 2025, was a $12.8 million commercial real estate loan, which is within the Board-established loans-to-one-borrower limit of 15% of Magyar Bank’s capital, or $18.6 million. Geographic Revenue Distribution:
• Deposit Market: Concentrated in Middlesex and Somerset Counties, New Jersey.
• Lending Market: Broadly covers all of New Jersey, with 96.0% of SBA loan balances originating from businesses within the state.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: Magyar Bancorp, Inc. operates in a highly competitive market area characterized by a high concentration of financial institutions, including large money center and regional banks, community banks, and credit unions. Competition for deposits also extends to short-term money market funds, brokerage firms, mutual funds, and insurance companies. Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Commercial banks, savings institutions, mortgage banking firms, and credit unions. Competitive Response Strategy: The Company's strategy involves building and developing profitable customer relationships across all business lines, maintaining its community bank identity, and managing interest rate risk through originating adjustable-rate loans, utilizing alternative funding sources like FHLBNY advances, and offering commercial loan swap products. It also focuses on underwriting standards to mitigate credit risks.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: The Company's financial condition and performance are significantly exposed to adverse changes in economic and business conditions within its New Jersey market, which could impact borrowers' ability to repay loans and the value of real estate collateral. Customer Concentration: Commercial real estate loans, which constitute a significant portion of the loan portfolio, involve larger balances and higher credit risk, with repayment heavily dependent on the operations and management of the underlying properties or businesses. The Company manages this through a Board-established loans-to-one-borrower limit of $18.6 million.

Operational & Execution Risks

Geographic Concentration: A substantial portion of Magyar Bank’s loans are secured by real estate in New Jersey, making the Company's earnings and capital more susceptible to local economic downturns compared to more geographically diverse institutions. Capacity Constraints: The Company's ability to offer large loans is constrained by its capitalization relative to larger competitors, necessitating reliance on loan participations for larger transactions.

Financial & Regulatory Risks

Market & Financial Risks:

• Demand Volatility: Deposit flows are influenced by general interest rates, economic conditions, and competition, leading to potential volatility.
• Interest Rate Risk: As the most significant market risk, the Company faces exposure due to its asset-liability structure, where longer-maturity mortgage loans are funded by shorter-maturity deposits. This risk is managed through adjustable-rate loans, matched funding with FHLBNY advances, and commercial loan swap products. Regulatory & Compliance Risks:
• Industry Regulation: Subject to extensive regulation and examination by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. Changes in these regulations could materially impact operations and stockholders.
• Data Privacy: Complies with federal regulations requiring disclosure of privacy policies and opt-out options for customers regarding personal information sharing.
• Cybersecurity: The Company has an Information Security Program and Incident Response Plan to monitor, detect, mitigate, and remediate cybersecurity incidents. Risks from cybersecurity threats have not materially affected the Company's business strategy, results of operations, or financial condition during the fiscal year ended September 30, 2025.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Board of Directors oversees the Information Security Program, IT Risk Assessment, Cybersecurity Risk Assessment, and makes budgeting and policy decisions to improve residual risk. The Technology and Security Committee, comprising senior management, IT Management, and business unit management, focuses on strategic planning and addressing cybersecurity threats.

Board Composition: The Board of Directors includes Thomas Lankey (Chairman), Andrew Hodulik (Vice Chairman), Joseph A. Yelencsics, Susan Eisenhauer, Michael R. Lombardi, and Maureen Ruane. The Board Asset and Liability Committee is responsible for evaluating and managing interest rate risk.

Human Capital Strategy

Workforce Composition:

• Total Employees: 91 full-time and 7 part-time employees as of September 30, 2025.
• Retention Metrics: 36% of current staff have been with the Company for ten years or more as of September 30, 2025.

Talent Management: Acquisition & Retention: The Company prioritizes employee well-being, career goals, competitive wages, and valuable fringe benefits to aid in retaining top-performing employees. Employee Value Proposition: Nearly all employees are stockholders through the Employee Stock Ownership Plan (ESOP), aligning associate and stockholder interests by providing tax-deferred stock ownership at no cost to employees.

Diversity & Development:

• Culture & Engagement: Management believes it maintains good relations with employees, fostering a culture that prioritizes core values and employee well-being.

Environmental & Social Impact

Social Impact Initiatives: Magyar Bancorp, Inc. is committed to meeting the credit needs of its communities, including low- and moderate-income neighborhoods, in accordance with the Community Reinvestment Act (CRA). The Company received a "Satisfactory" CRA rating in its most recent federal examination by the FDIC in 2025.

Business Cyclicality & Seasonality

Demand Patterns: The Company's customer base, primarily individuals and small to mid-sized businesses, is dependent on the regional economy. This makes the Company's financial performance sensitive to adverse changes in economic and business conditions, which can affect borrowers' ability to repay loans and the value of collateral. Repayment of commercial business loans is particularly sensitive to local and national economic conditions due to its reliance on the success of the borrower's business.

Planning & Forecasting: The Asset and Liability Committee is responsible for establishing and monitoring liquidity targets and strategies to ensure sufficient funds for customer borrowing needs and unforeseen contingencies. The Company adjusts its liquid asset investments based on expected loan demand, deposit flows, yields on interest-earning assets, and asset/liability management objectives.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: Magyar Bancorp, Inc. and Magyar Bank are subject to extensive regulation and examination by the New Jersey Department of Banking and Insurance (NJDBI) and the Federal Deposit Insurance Corporation (FDIC). As a bank holding company, Magyar Bancorp, Inc. is also regulated by the Federal Reserve Bank (FRB) under the Bank Holding Company Act of 1956 and the New Jersey Banking Act of 1948. Compliance with these regulations is comprehensive, and any changes could materially impact operations. Legal Proceedings: The Company is a party to routine litigation incidental to its business operations. Management believes that any resulting liability from these legal actions as of September 30, 2025, is immaterial to its consolidated financial position, results of operations, and cash flows.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 29.32% for the year ended September 30, 2025, compared to 29.88% for the year ended September 30, 2024.
• Geographic Tax Planning: Magyar Investment Company, a New Jersey investment corporation subsidiary, is utilized to hold investment securities, with income subject to a lower state tax rate than if held directly by Magyar Bank.
• Tax Reform Impact: The Company will be impacted by Accounting Standards Update (ASU) 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," effective for its fiscal year 2026, which requires enhanced disclosures around effective tax rates and cash income taxes paid.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: The Company utilizes Bank-Owned Life Insurance (BOLI) policies on directors and officers to help offset non-qualified compensation plan costs. Credit exposure from BOLI is minimized by selecting highly-rated carriers and limiting concentration with any single carrier.
• Risk Transfer Mechanisms: The Company engages in interest rate derivatives, specifically interest rate swaps, with commercial lending customers. These customer swaps are simultaneously offset by corresponding swaps with a third-party financial institution, effectively minimizing the Bank's net risk exposure from such transactions.