10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2020

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ______________

Commission File Number: 000-51726

Magyar Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	20-4154978
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
400 Somerset Street, New Brunswick, New Jersey	08901
(Address of Principal Executive Office)	(Zip Code)

(732) 342-7600

(Issuer’s Telephone Number including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share	MGYR	The NASDAQ Global Market

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act.

Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	þ	Smaller reporting company	þ
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No þ

The aggregate value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of the Common Stock as of March 31, 2020 was $23.5 million. As of December 15, 2020, there were 5,810,746 outstanding shares of the registrant’s Common Stock, including 3,200,450 shares owned by Magyar Bancorp, MHC, the registrant’s mutual holding company.

DOCUMENTS INCORPORATED BY REFERENCE

1.       Proxy Statement for the Annual Meeting of Stockholders to be held in February, 2021 (Part III)

Magyar Bancorp, Inc.

Annual Report On Form 10-K

For The Fiscal Year Ended

September 30, 2020

Table Of Contents

PART I
ITEM 1.	Business	2
ITEM 1A.	Risk Factors	30
ITEM 1B.	Unresolved Staff Comments	35
ITEM 2.	Properties	35
ITEM 3.	Legal Proceedings	36
ITEM 4.	Mine Safety Disclosures	36
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36
ITEM 6.	Selected Financial Data	37
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	48
ITEM 8.	Financial Statements and Supplementary Data	49
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	92
ITEM 9A.	Controls and Procedures	92
ITEM 9B.	Other Information	92
PART III
ITEM 10.	Directors, Executive Officers, and Corporate Governance	92
ITEM 11.	Executive Compensation	93
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	93
ITEM 14.	Principal Accountant Fees and Services	93
PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	94
ITEM 16.	Form 10-K Summary	95
	SIGNATURES	96

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PART I

ITEM 1. Business

Forward Looking Statements

We have included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbour provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, as well as statements about the objective and effectiveness of our risk management and liquidity policies, statements about trends in or growth opportunities for our business, statements about our future status, and activities or reporting under U.S. banking and financial regulation. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed below and under “Risk Factors” in Part 1, Item 1A of this Annual Report on Form 10-K.

Magyar Bancorp, MHC

Magyar Bancorp, MHC is the New Jersey-chartered mutual holding company of Magyar Bancorp, Inc. Magyar Bancorp, MHC’s only business is the ownership of 55.0% of the issued shares of common stock of Magyar Bancorp, Inc. So long as Magyar Bancorp, MHC exists, it will be required to own a majority of the voting stock of Magyar Bancorp, Inc. The executive office of Magyar Bancorp, MHC is located at 400 Somerset Street, New Brunswick, New Jersey 08901, and its telephone number is (732) 342-7600. Magyar Bancorp, MHC is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”) and the New Jersey Department of Banking and Insurance (“NJDBI”).

Magyar Bancorp, Inc.

Magyar Bancorp, Inc. is the mid-tier stock holding company of Magyar Bank. Magyar Bancorp, Inc. is a Delaware-chartered corporation and owns 100% of the outstanding shares of common stock of Magyar Bank. Magyar Bancorp, Inc. has not engaged in any significant business activity other than owning all of the shares of common stock of Magyar Bank. At September 30, 2020, Magyar Bancorp, Inc. had consolidated assets of $754.0 million, total deposits of $618.3 million and stockholders’ equity of $56.9 million. Magyar Bancorp, Inc. is subject to comprehensive regulation and examination by the FRB and the NJDBI.

Magyar Bank

Magyar Bank is a New Jersey-chartered savings bank headquartered in New Brunswick, New Jersey that was originally founded in 1922 as a New Jersey building and loan association. In 1954, Magyar Bank converted to a New Jersey savings and loan association, before converting to a New Jersey savings bank charter in 1993. We conduct business from our main office located at 400 Somerset Street, New Brunswick, New Jersey, and our seven branch offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey. The telephone number at our main office is (732) 342-7600 and our website is located at www.magbank.com.

General

Our principal business consists of attracting retail deposits from the general public in the areas surrounding our main office in New Brunswick, New Jersey and our branch offices located in Middlesex and Somerset Counties, New Jersey, and investing those deposits, together with funds generated from operations and wholesale funding, in residential mortgage loans, home equity loans, home equity lines of credit, commercial real estate loans, commercial business loans, Small Business Administration (“SBA”) loans, construction loans and investment securities. We also originate consumer loans, which consist primarily of secured demand loans. We originate loans primarily for our loan portfolio. However, from time to time we have

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sold some of our long-term fixed-rate residential mortgage loans into the secondary market, while retaining the servicing rights for such loans. In addition we sell the SBA guaranteed portion of SBA loans while retaining the servicing rights for such loans. Our revenues are derived principally from interest on loans and securities, our investment securities consist primarily of mortgage-backed securities and U.S. Government and government-sponsored enterprise obligations. We also generate revenues from fees and service charges. Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities. We are subject to comprehensive regulation and examination by the NJDBI and the Federal Deposit Insurance Corporation (“FDIC”).

Market Area

We are headquartered in New Brunswick, New Jersey, and our primary deposit market area is concentrated in the communities surrounding our headquarters branch and our branch offices located in Middlesex and Somerset Counties, New Jersey. Our primary lending market area is broader than our deposit market area and includes all of New Jersey.

The economy of our primary market area is largely urban and suburban with a broad economic base that is typical for counties surrounding the New York metropolitan area. The median household income in Middlesex and Somerset county ranks among the highest in the nation.

Competition

We face intense competition within our market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions including large money center and regional banks, community banks and credit unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. According to the Federal Deposit Insurance Corporation’s annual Summary of Deposit report, at June 30, 2020 our market share of deposits was 1.22% and 0.46% in Middlesex and Somerset Counties, respectively. Our market share of deposits was 1.27% and 0.48%, respectively, at June 30, 2019.

Our competition for loans and deposits comes principally from commercial banks, savings institutions, mortgage banking firms and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.

Lending Activities

We originate residential mortgage loans to purchase or refinance residential real property. Residential mortgage loans represented $210.4 million, or 34.4% of our total loans at September 30, 2020. Historically, we have not originated a significant number of loans for the purpose of reselling them in the secondary market. In the future, however, to help manage interest rate risk and to increase fee income, we may increase our origination and sale of residential mortgage loans. No loans were held for sale at September 30, 2020. We also originate commercial real estate, commercial business and construction loans. At September 30, 2020, these loans totaled $248.1 million, $101.0 million and $28.2 million, respectively. We also offer consumer loans, which consist primarily of home equity lines of credit and stock-secured demand loans. At September 30, 2020, home equity lines of credit and stock-secured demand loans totaled $19.4 million and $4.1 million, respectively.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan, at the dates indicated.

	September 30,
	2020					2019					2018					2017					2016
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
One-to-four-family residential	$	210,360			34.4%	$	190,415			36.4%	$	185,287			36.2%	$	178,336			37.6%	$	173,235			37.8%
Commercial real estate		248,134			40.6%		232,544			44.5%		219,347			42.8%		207,118			43.7%		199,510			43.6%
Construction		28,242			4.6%		28,451			5.4%		30,412			5.9%		22,622			4.8%		14,939			3.3%
Home equity lines of credit		19,373			3.2%		17,832			3.4%		17,982			3.5%		18,536			3.9%		21,967			4.8%
Commercial business		100,993			16.5%		48,769			9.3%		53,320			10.4%		41,113			8.7%		38,865			8.5%
Other		4,157			0.7%		4,990			1.0%		6,150			1.2%		6,266			1.3%		9,355			2.0%
Total loans receivable	$	611,259			100.0%	$	523,001			100.0%	$	512,498			100.0%	$	473,991			100.0%	$	457,871			100.0%
Net deferred loan costs		(1,749	)				104					132					177					216
Allowance for loan losses		(6,400	)				(4,888	)				(4,200	)				(3,475	)				(3,056	)
Total loans receivable, net	$	603,110				$	518,217				$	508,430				$	470,693				$	455,031

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2020. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One-to-Four-Family				Commercial								Home Equity
	Residential				Real Estate				Construction				Lines of Credit
Due During the			Weighted				Weighted				Weighted				Weighted
Fiscal Years Ending			Average				Average				Average				Average
September 30,	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
	(Dollars in thousands)
2021	$	234		4.55%	$	16,079		5.60%	$	26,163		6.33%	$	6,895		4.23%
2022		2,639		4.13%		3,098		4.88%		1,406		4.25%		1,749		3.98%
2023		1,462		3.91%		1,901		4.70%		—		—		—		—
2024 to 2025		2,786		5.14%		13,973		4.49%		162		5.75%		—		—
2026 to 2030		9,598		3.96%		25,616		5.19%		—		—		198		3.53%
2031 to 2035		22,620		4.00%		27,720		4.75%		—		—		1,593		3.57%
2036 and beyond		171,021		4.15%		159,747		4.61%		511		4.71%		8,938		4.07%
Total	$	210,360		4.14%	$	248,134		4.75%	$	28,242		6.20%	$	19,373		4.07%

	Commercial Business				Other				Total
Due During the			Weighted				Weighted				Weighted
Fiscal Years Ending			Average				Average				Average
September 30,	Amount		Rate		Amount		Rate		Amount		Rate
	(Dollars in thousands)
2021	$	27,249		4.15%	$	3		13.03%	$	76,623		5.21%
2022		56,953		1.06%		7		14.32%		65,852		1.51%
2023		551		5.05%		6		13.00%		3,920		4.47%
2024 to 2025		6,639		5.63%		27		8.04%		23,587		4.90%
2026 to 2030		4,278		4.63%		20		9.35%		39,710		4.83%
2031 to 2035		1,242		5.13%		14		3.83%		53,189		4.40%
2036 and beyond		4,081		5.15%		4,080		2.41%		348,378		4.35%
Total	$	100,993		2.59%	$	4,157		2.53%	$	611,259		4.21%

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The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2020 that are contractually due after September 30, 2021.

	Due After September 30, 2021
	Fixed		Adjustable		Total
	(In thousands)
One-to-four-family residential	$	127,657	$	82,469	$	210,126
Commercial real estate		13,555		218,500		232,055
Construction		162		1,917		2,079
Home equity lines of credit		1,747		10,731		12,478
Commercial business		63,959		9,785		73,744
Other		70		4,084		4,154
Total	$	207,150	$	327,486	$	534,636

Residential Mortgage Loans. We originate residential mortgage loans, most of which are secured by properties located in our primary market area and most of which we hold in portfolio. At September 30, 2020, $210.4 million, or 34.4% of our total loan portfolio, consisted of residential mortgage loans (including home equity loans). Residential mortgage loan originations are generally obtained from our in-house loan representatives, from existing or past customers, through advertising, and through referrals from local builders, real estate brokers and attorneys, and are underwritten pursuant to Magyar Bank’s policies and standards. Generally, residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80%. We generally will not make residential mortgage loans with a loan-to-value ratio in excess of 95%, which is the upper limit that has been established by the Board of Directors. Mortgage loans have been primarily originated for terms of up to 30 years. Magyar Bank does not originate or purchase “sub-prime” (mortgages granted to borrowers whose credit history is not sufficient to get a conventional mortgage) or option ARM mortgage loans. At September 30, 2020, non-performing residential mortgage loans totaled $905,000, or 0.43% of the total residential loan portfolio. Interest income of $30,000 would have been recorded on non-performing residential mortgage loans for the year ended September 30, 2020, if they had been current in accordance with their original terms. During the year ended September 30, 2020, there were no charge-offs against the allowance for loan loss for impaired residential real estate loans while $9,000 was recovered from prior year charge offs.

We also originate home equity loans secured by residences located in our market area. The underwriting standards we use for home equity loans include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations, the ongoing payments on the proposed loan and the value of the collateral securing the loan. The maximum combined (first and second mortgage liens) loan-to-value ratio for home equity loans and home equity lines of credit is 80%. Home equity loans are generally offered with fixed rates of interest with the loan amount not to exceed $500,000 and with terms of up to 30 years. At September 30, 2020, there were no non-performing home equity loans and there were no charge-offs during the year ended September 30, 2020.

Generally, all fixed-rate residential mortgage loans are underwritten according to Federal Home Loan Mortgage Corporation (“Freddie Mac”) guidelines, policies and procedures. Historically, we have not originated a significant number of loans for the purpose of reselling them in the secondary market. In the future we may increase our origination and sale of fixed-rate residential mortgage loans to help manage interest rate risk and to increase fee income. There were no fixed-rate mortgage loans sold to Freddie Mac during the year ended September 30, 2020 and there were no loans were held for sale at September 30, 2020.

We generally do not purchase residential mortgage loans, except for loans to low-income borrowers to enhance our Community Reinvestment Act performance. However, we purchased $13.2 million in residential mortgage loans during the year ended September 30, 2020 to augment our in-house originations. We underwrite purchased residential mortgage loans using the same criteria as if we were originating the loans.

At September 30, 2020, we had $127.8 million of fixed-rate residential mortgage loans, which represented 60.8% of our total residential mortgage loan portfolio. At September 30, 2020, our largest fixed-rate residential mortgage loan was $1.8 million. The loan was performing in accordance with its terms at September 30, 2020.

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We also offer adjustable-rate residential mortgage loans with interest rates based on the weekly average yield on U.S. Treasuries or the London Interbank Offering Rate (“LIBOR”) adjusted to a constant maturity of one year, which adjusts either annually from the outset of the loan or which adjusts annually after a one-, three-, five-, seven-, and ten-year initial fixed-rate period. Our adjustable-rate mortgage loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 5%, regardless of the initial rate. We also offer adjustable-rate mortgage loans with an interest rate based on the prime rate as published in The Wall Street Journal or the Federal Home Loan Bank of New York advance rates.

Adjustable-rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing. However, these loans have other risks because, as interest rates increase, the underlying payments by the borrower increase, which increases the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. The maximum periodic and lifetime interest rate adjustments also may limit the effectiveness of adjustable-rate mortgage loans during periods of rapidly rising interest rates.

At September 30, 2020, adjustable-rate residential mortgage loans totaled $82.5 million, or 39.2% of our total residential mortgage loan portfolio. The largest adjustable-rate residential mortgage loan was for $2.6 million. The loan was performing in accordance with its terms at September 30, 2020.

In an effort to provide financing for low-and moderate-income home buyers, we offer low-to-moderate income residential mortgage loans. These loans are offered with fixed rates of interest and terms of up to 40 years, and are secured by one-to four-family residential properties. All of these loans are originated using underwriting guidelines of U.S. government-sponsored enterprises such as Federal Home Loan Mortgage Corporation (“Freddie Mac”). These loans are originated with maximum loan-to-value ratios of 95%.

All residential mortgage loans we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable if the borrower sells or otherwise disposes of the real property securing the mortgage loan. All borrowers are required to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance on properties securing real estate loans.

Commercial Real Estate Loans. We also originate commercial real estate loans, most of which are secured by properties located in our primary market area. At September 30, 2020, $248.1 million, or 40.6%, of our total loan portfolio consisted of these types of loans. Commercial real estate loans are generally secured by five-or-more-unit apartment buildings, industrial properties and properties used for business purposes such as small office buildings and retail facilities. We generally originate adjustable-rate commercial real estate loans with a maximum term of 25 years with adjustable rate periods every five years. The maximum loan-to-value ratio for our commercial real estate loans is 75%, based on the appraised value of the property.

We consider a number of factors when we originate commercial real estate loans. During the underwriting process we evaluate the business qualifications and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition of the mortgaged property securing the loan. When evaluating the business qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly debt service. We require personal guarantees on all commercial real estate loans made to individuals. Generally, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals. All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.

Loans secured by commercial real estate generally are larger than residential mortgage loans and involve greater credit risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.

The maximum amount of a commercial real estate loan is limited by our Board-established loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital, or $9.7 million. At September 30, 2020, our largest commercial real

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estate loan was $5.7 million to finance the purchase of a manufacturing business in New Jersey. The loan was performing in accordance with its terms at September 30, 2020.

At September 30, 2020, eight commercial real estate loans totaling $2.2 million were non-performing. During the year ended September 30, 2020, there were no charge-offs against the allowance for loan loss, however there were $5,000 in recoveries from prior year charge-offs. Interest income of $87,000 would have been recorded on non-performing commercial real estate loans for the year ended September 30, 2020, if they had been current in accordance with their original terms. All other loans secured by commercial real estate were performing in accordance with their terms.

Construction Loans. We also originate construction loans for the development of one-to four-family homes, apartment buildings and commercial properties. Construction loans are generally offered to experienced local developers operating in our primary market area and to individuals for the construction of their personal residences. At September 30, 2020, our construction loans totaled $28.2 million, or 4.6% of total loans.

At September 30, 2020, construction loans for the development of one-to four-family residential properties totaled $12.7 million. These construction loans generally have a maximum term of 24 months. We provide financing for land acquisition, site improvement and construction of individual homes. Land acquisition loans are limited to 50% to 75% of the sale price of the land. Site improvement loans are limited to 100% of the bonded site improvement costs. Construction loans are limited to 75% of the lesser of the contract sale price or appraised value of the property (less funds already advanced for land acquisition and site improvement).

At September 30, 2020, construction loans for the development of commercial properties totaled $12.8 million. These construction loans have a maximum term of 24 months. The maximum loan-to-value ratio limit applicable to these loans is 75% of the appraised value of the property.

At September 30, 2020, construction loans for the development of town homes, condominiums and apartment buildings totaled $2.9 million. The maximum loan-to-value ratio limit applicable to these loans is 70% of the appraised value of the property. We may retain up to 10% of each loan advance until the property attains a 90% occupancy level.

The maximum amount of a construction loan is limited by our loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital, or $9.7 million. At September 30, 2020, our largest outstanding construction loan was a $2.8 million loan to finance the construction of single-family home in Colts Neck, New Jersey. The loan has been past due greater than 90 days since the Bank declined to renew the loan upon its maturity in January 2018. At September 30, 2020, the Bank was in the process of foreclosing on the real estate collateral securing the loan as well as pursuing the personal guarantors of the loan. At September 30, 2020, there were a total of three non-performing construction loan totaling $5.1 million. Interest income of $297,000 would have been recorded on these non-performing construction loan for the year ended September 30, 2020, if they had been current in accordance with their original term. During the year ended September 30, 2020, $65,000 was charged-off against the allowance for loan loss and there were no recoveries from prior year charge-offs.

Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We generally also engage an outside engineering firm to review and inspect each property before disbursement of funds during the term of a construction loan. Loan proceeds are disbursed after inspection based on the percentage of completion method. We require a personal guarantee from each principal of all of our construction loan borrowers.

Construction lending is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if our estimate of the value of the completed property is inaccurate, our construction loan may exceed the value of the collateral.

Commercial Business Loans. At September 30, 2020, our commercial business loans totaled $101.0 million, or 16.5% of total loans. We make commercial business loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized businesses. Our commercial business loans include term loans and revolving lines of credit. The maximum term of a commercial business loan is 25 years. Such loans are generally used for longer-term working capital purposes such as purchasing equipment or furniture. Commercial business loans are made with either

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adjustable or fixed rates of interest. The interest rates for adjustable commercial business loans are typically based on the prime rate as published in The Wall Street Journal.

Included in commercial business loans are SBA 7(a) loans, on which the SBA provides guarantees of up to 75% of the principal balance (85% for loans under $150,000). These loans are made for the purposes of providing working capital and financing the purchase of equipment, inventory or commercial real estate, and may be made inside or outside the Company’s market place. Generally, an SBA 7(a) loan has a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the government provides the guarantee. The deficiency may be a higher loan to value ratio, lower debt service coverage ratio or weak personal financial guarantees. In addition, many SBA 7(a) loans are for start-up businesses where there is no history of financial information. Finally, many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work with the Bank on a single transaction. The guaranteed portions of the Company’s SBA loans are generally sold in the secondary market.

When making commercial business loans, we consider the financial strength of the borrower, our lending history with the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the value and type of the collateral. Commercial business loans generally are secured by a variety of collateral, primarily accounts receivable, inventory, equipment, savings instruments and readily marketable securities. In addition, we generally require the business principals to execute personal guarantees.

Commercial business loans generally have greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to repay the loan from his or her employment income, and which are secured by real property with ascertainable value, commercial business loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the repayment of commercial business loans may depend substantially on the success of the borrower’s business. As such the performance of these types of loans may be particularly sensitive to local and/or national economic conditions. Further, any collateral securing commercial business loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We try to minimize these risks through our underwriting standards.

The Bank participated in the Paycheck Protection Program (“PPP”), which was designed by the U.S. Treasury under the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) to provide liquidity using the SBA’s platform to small businesses and self-employed individuals to maintain their staff and operations through the COVID-19 pandemic. This liquidity is in the form of a loan, 100% guaranteed by the SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0% and loan payments are deferred through the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). The Company originated 350 loans totaling $56.0 million through September 30, 2020. These loans have a two year term for loans originated prior to June 4, 2020 and a five year term for loans originated June 5, 2020 or later. The Company expects the majority of these loans to be approved for full forgiveness by the SBA.

The maximum amount of a commercial business loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital, or $9.7 million. At September 30, 2020, our largest commercial business loan was a $5.5 million loan to a company that provides janitorial services and was secured by the accounts receivable of the company. This loan was performing according to its terms at September 30, 2020. At September 30, 2020, three commercial business loan totaling $1.5 million were non-performing. Interest income of $93,000 would have been recorded on non-performing commercial business loans for the year ended September 30, 2020, if they had been current in accordance with their original terms. During the year ended September 30, 2020, $204,000 was charged-off against the allowance for loan loss for one impaired commercial business loan and there was a $100,000 recovery from a prior year charge-off.

Home Equity Lines of Credit and Other Loans. We originate home equity lines of credit secured by residences located in our market area. At September 30, 2020, these loans totaled $19.4 million, or 3.2% of our total loan portfolio. The underwriting standards we use for home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations, the ongoing payments on the proposed loan and the value of the collateral securing the loan. The maximum combined (first and second mortgage liens) loan-to-value ratio for home equity lines of credit is 80%. Home equity lines of credit have adjustable rates of interest, indexed to the prime rate, as reported in The Wall Street Journal, with terms of up to 25 years.

The maximum amount of a home equity line of credit loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital, or $9.7 million currently. At September 30, 2020, our largest home equity line of credit loan

8 

was $2.3 million. The loan was performing according to its terms at September 30, 2020. At September 30, 2020, there were no home equity lines of credit charge-offs, while there was $1,000 recovered from a prior year charge-off.

We also originate loans secured by the common stock of publicly traded companies, provided their shares are listed on the New York Stock Exchange or the NASDAQ Stock Market, and provided the company is not a banking company. Stock-secured loans are interest-only and are offered for terms up to twelve months and for adjustable rates of interest indexed to the prime rate, as reported in The Wall Street Journal. The loan amount is not to exceed 70% of the value of the stock securing the loan at any time.

At September 30, 2020, stock-secured loans totaled $4.1 million, or 0.67% of our total net loan portfolio. Generally, we limit the aggregate amount of loans secured by the common stock of any one corporation to 15% of Magyar Bank’s capital, with the exception of Johnson & Johnson, for which the collateral concentration limit is 150% of Magyar Bank’s capital. At September 30, 2020, loans totaling $4.0 million, or 0.67% of our loan portfolio, were secured by the common stock of Johnson & Johnson a New York Stock Exchange company that operates a number of facilities in our market area and employs a substantial number of residents. Although these loans are underwritten based on the ability of the individual borrower to repay the loan, the concentration of our portfolio secured by this stock subjects us to the risk of a decline in the market price of the stock and, therefore, a reduction in the value of the collateral securing these loans. As of September 30, 2020, the aggregate loan-to-value ratio of the stock-secured portfolio was 30.5%.

Loan Originations, Purchases, Participations and Servicing of Loans. Lending activities are conducted primarily by our loan personnel operating at our main and branch office locations. All loans originated by us are underwritten pursuant to our policies and procedures. We originate both adjustable rate and fixed rate loans. Our ability to originate fixed or adjustable rate loans is dependent upon the relative customer demand for such loans, which is affected by the current and expected future levels of market interest rates.

Generally, we retain in our portfolio substantially all loans that we originate. Historically, we have not originated a significant number of loans for the purpose of selling them in the secondary market. In the future, however, to help manage our interest rate risk and to increase fee income, we may increase our origination and sale of fixed-rate residential loans and commercial business loans guaranteed by the SBA. All one-to four-family residential mortgage loans that we sell in the secondary market are sold with servicing rights retained pursuant to master commitments negotiated with Freddie Mac. We sell our loans to Freddie Mac without recourse. No loans were held for sale at September 30, 2020.

At September 30, 2020, we were servicing SBA guaranteed and commercial participation loans sold in the amount of $22.2 million and $15.2 million, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans.

From time-to-time, we will also participate in loans, sometimes as the “lead lender.” Whether we are the lead lender or not, we underwrite our participation portion of the loan according to our own underwriting criteria and procedures. At September 30, 2020, we had $17.2 million of loan participation interests in which we were the lead lender, and $16.4 million in loan participations in which we were not the lead lender. There were no commercial real estate loan participations originated during the year ended September 30, 2020 in which we were not the lead lender. We have entered into certain loan participations when the aggregate outstanding balance of a particular customer relationship exceeds our loan-to-one-borrower limit. All loan participations are loans secured by real estate that adhere to our loan policies. At September 30, 2020, all participation loans were performing in accordance with their terms.

During the fiscal year ended September 30, 2020, we originated $38.5 million of fixed-rate and adjustable-rate one-to four-family residential mortgage loans and $32.6 million of fixed-rate and adjustable-rate commercial real estate loans. The fixed-rate loans are primarily loans with terms of 30 years or less. In addition, we purchased $11.1 million of adjustable-rate one-to four-family residential mortgage loans We also originated $11.4 million of construction loans, $60.3 million of commercial business loans (which includes $56.0 million of PPP loans), and $3.0 million of home equity lines of credit and other loans.

We generally do not purchase residential mortgage loans, except for loans to low-income borrowers as part of our Community Reinvestment Act lenders program. At September 30, 2020, we had $16.7 million of one-to four-family residential mortgage loans that were serviced by other lenders.

9 

Asset Quality

We commence collection efforts when a loan becomes 15 days past due with system-generated reminder notices. Subsequent late charge and delinquent notices are issued and the account is monitored on a regular basis thereafter. Personal, direct contact with the borrower is attempted early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral. When a loan is more than 60 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency. Loans are placed on non-accrual status when they are delinquent for more than three months. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received.

A summary report of all loans 30 days or more past due is provided to the Board of Directors on a monthly basis. If no repayment plan is in process, the file is referred to counsel for the commencement of foreclosure or other collection efforts.

Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. The table includes troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) for each date presented.

10 

	September 30,
	2020		2019		2018		2017		2016
	(Dollars in thousands)
Non-accrual loans:
One-to four-family residential	$	905	$	114	$	138	$	1,663	$	2,486
Commercial real estate		2,219		2,652		455		482		443
Construction		5,141		2,900		—		—		—
Home equity lines of credit		—		—		90		—		281
Commercial business		1,467		1,228		223		213		997
Total non-accrual loans		9,732		6,894		906		2,358		4,207
Accruing loans three months or more past due:
One-to four-family residential		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Construction		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—
Commercial business		—		—		—		—		—
Other		—		—		—		—		—
Total loans three months or more past due		—		—		—		—		—
Total non-performing loans		9,732		6,894		906		2,358		4,207
Other real estate owned		2,594		7,528		8,586		11,056		12,082
Total non-performing assets		12,326		14,422		9,492		13,414		16,289
Performing troubled debt restructurings		220		363		—		182		—
Performing troubled debt restructurings
and total non-performing assets	$	12,546	$	14,785	$	9,492	$	13,596	$	16,289
Ratios:
Total non-performing loans to total loans		1.59%		1.32%		0.18%		0.50%		0.92%
Total non-performing loans and performing
troubled debt restructurings to total loans		1.63%		1.39%		0.18%		0.54%		0.92%
Total non-performing assets to total assets		1.63%		2.29%		1.52%		2.22%		2.79%
Total non-performing assets and performing
troubled debt restructurings to total assets		1.66%		2.35%		1.52%		2.25%		2.79%

At September 30, 2020, our portfolio of commercial business, commercial real estate and construction loans totaled $377.4 million, or 61.7% of our total loans, compared to $309.8 million, or 59.2% of our total loans, at September 30, 2019. Commercial business, commercial real estate and construction loans generally have more risk than one-to four-family residential mortgage loans. As shown in the table above, our troubled debt restructurings and total non-performing assets decreased $2.3 million to $12.5 million at September 30, 2020 from $14.8 million at September 30, 2019, and increased $3.0 million from $9.5 million at September 30, 2018.

Additional interest income of approximately $508,000 and $530,000 would have been recorded during the fiscal years ended September 30, 2020 and 2019, respectively, if the non-accrual loans summarized in the above table had performed in accordance with their original terms.

The Company accounts for its impaired loans in accordance with generally accepted accounting principles, which require that a creditor measure impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate except that, as a practical expedient, a creditor may measure impairment based on a loan’s observable market price less estimated costs of disposal, or the fair value of the collateral less estimated costs of disposal if the loan is collateral dependent. Regardless of the measurement method, a creditor may measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.

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The Company records cash receipts on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges unless specifically directed by the Bankruptcy Court to apply payments otherwise. The Company generally continues to recognize interest income on impaired loans that are performing.

Troubled debt restructurings (“TDRs”) occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both. There was one new TDR loan totaling $220,000 during the fiscal year ended September 30, 2020 that was performing in accordance with its restructured terms at September 30, 2020. For comparison purposes, there was one TDR loan totaling $363,000 during the fiscal year ended September 30, 2019.

Delinquent Loans. The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated. Loans delinquent more than three months are generally classified as non-accrual loans.

	Loans Delinquent For
	60-89 Days				90  Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
At September 30, 2020
One-to four-family residential		—	$	—		3	$	905		3	$	905
Commercial real estate		2		886		8		2,219		10		3,105
Construction		—		—		3		5,141		3		5,141
Commercial business		1		129		3		1,467		4		1,596
Total		3	$	1,015		17	$	9,732		20	$	10,747
At September 30, 2019
One-to four-family residential		—	$	—		1	$	114		1	$	114
Commercial real estate		1		58		4		2,652		5		2,710
Commercial business		—		—		2		1,228		2		1,228
Total		1	$	58		8	$	6,894		9	$	6,952
At September 30, 2018
One-to four-family residential		—	$	—		1	$	138		1	$	138
Commercial real estate		—		—		3		455		3		455
Home equity lines of credit		—		—		3		90		3		90
Commercial business		—		—		2		223		2		223
Total		—	$	—		9	$	906		9	$	906
At September 30, 2017
One-to four-family residential		1	$	127		8	$	1,663		9	$	1,790
Commercial real estate		—		—		3		482		3		482
Home equity lines of credit		1		192		—		—		1		192
Commercial business		1		80		1		213		2		293
Total		3	$	399		12	$	2,358		15	$	2,757
At September 30, 2016
One-to four-family residential		1	$	44		10	$	2,486		11	$	2,530
Commercial real estate		1		490		3		443		4		933
Home equity lines of credit		—		—		3		281		3		281
Commercial business		1		3		1		997		2		1,000
Total		3	$	537		17	$	4,207		20	$	4,744

Real Estate Owned. Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”) until sold. When property is acquired it is recorded at fair value less estimated cost to

12 

sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value result in charges to expense after acquisition.

The Company held $2.6 million of OREO properties at September 30, 2020, a decrease of $4.9 million from $7.5 million at September 30, 2019. The Company was able to dispose of seven properties with an aggregate carrying value of $4.6 million for a net gain of $42,000. There were no new properties recorded as OREO during the year ended September 30, 2020.

OREO at September 30, 2020 consisted of one residential property totaling $215,000, one compilation of real estate lots/land totaling $490,000, and three commercial real estate buildings totaling $1.9 million. The Bank is determining the proper course of action for its OREO, which may include holding the properties until the real estate market improves, marketing the properties for individual sale, or selling properties to an investor and/or developer.

The Company recorded $371,000 in valuation allowances against its OREO during the year ended September 30, 2020 based on updated appraisals or executed contracts of sale. Further declines in real estate values may result in a charge to expense in the future. Routine holding costs are charged to expense as incurred and improvements to OREO that enhance the value of the real estate are capitalized.

Classified Assets. Federal banking regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “un-collectible” and of such little value their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset. On the basis of our review at September 30, 2020, classified assets consisted of $2.8 million in special mention loans, $12.2 million in substandard loans, and $1.3 million in substandard OREO.

We are required to establish an allowance for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike impairment allowances, have not been allocated to particular problem assets. When we classify problem assets, we are required to determine whether or not impairment exists. A loan is impaired when, based on current information and events, it is probable that Magyar Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. When it is determined that impairment exists, a specific allowance for loss is established. For collateral-dependent loans, the loan is reduced by the impairment amount via a reduction to the loan and the allowance for loan loss. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the NJDBI and the FDIC, which can direct us to establish additional loss allowances.

The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.

Allowance for Loan Losses

Our allowance for loan losses is maintained at a level management deems necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses in our loan portfolio both probable and reasonably estimable, and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. The allowance for loan losses as of September 30, 2020 was maintained at a level that represents management’s best estimate of losses in the loan portfolio both probable and reasonably estimable. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

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In addition, as an integral part of their examination process, the NJDBI and the FDIC will periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

The provision for loan losses increased $1.0 million to $1.7 million for the year ended September 30, 2020 compared to $668,000 for the year ended September 30, 2019. The increase was attributable to growth in total loans receivable and higher adjustments to the historical loss factors for economic conditions relating to the COVID-19 pandemic.

Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the periods indicated.

	September 30,
	2020		2019			2018		2017		2016
	(Dollars in thousands)
Balance at beginning of period	$	4,888	$	4,200		$	3,475	$	3,056	$	2,886
Charge-offs:
One-to four-family residential		—		—			213		295		134
Commercial real estate		—		1			—		23		61
Construction		65		—			—		—		—
Home equity lines of credit		—		—			—		—		98
Commercial business		204		100			170		672		1,118
Other		—		—			3		—		—
Total charge-offs		269		101			386		990		1,411
Recoveries:
One-to four-family residential		9		120			87		35		—
Commercial real estate		5		—			23		—		100
Construction		—		—			3		12		7
Home equity lines of credit		1		1			1		15		82
Commercial business		100		—			—		4		26
Total recoveries		115		121			114		66		215
Net charge-offs		154		(20	)		272		924		1,196
Provision for loan losses		1,666		668			997		1,343		1,366
Balance at end of period	$	6,400	$	4,888		$	4,200	$	3,475	$	3,056
Ratios:
Net charge-offs to average loans outstanding		0.03%		0.00%			0.06%		0.20%		0.28%
Allowance for loan losses to total
non-performing loans at end of period		65.76%		70.90%			463.57%		147.37%		72.64%
Allowance for loan losses to total loans
at end of period		1.05%		0.93%			0.82%		0.73%		0.67%

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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the percent of the allowance to the total allowance and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

			% of Allowance		% of Loans
			In Category to		In Category to
	Amount		Total Allowance		Total Loans
	(Dollars in thousands)
At September 30, 2020
One-to four-family residential	$	1,035		16.17%		34.41%
Commercial real estate		3,232		50.49%		40.59%
Construction		672		10.50%		4.62%
Home equity lines of credit		179		2.80%		3.17%
Commercial business		1,034		16.16%		16.52%
Other		1		0.02%		0.68%
Unallocated		247		3.86%		0.00%
Total allowance for loan losses	$	6,400		100.00%		100.00%
At September 30, 2019
One-to four-family residential	$	731		14.95%		36.41%
Commercial real estate		2,066		42.28%		44.46%
Construction		511		10.45%		5.44%
Home equity lines of credit		138		2.82%		3.41%
Commercial business		1,184		24.23%		9.32%
Other		8		0.16%		0.95%
Unallocated		250		5.11%		0.00%
Total allowance for loan losses	$	4,888		100.00%		100.00%
At September 30, 2018
One-to four-family residential	$	687		16.36%		36.15%
Commercial real estate		1,540		36.67%		42.80%
Construction		493		11.74%		5.93%
Home equity lines of credit		109		2.60%		3.51%
Commercial business		1,151		27.40%		10.40%
Other		25		0.60%		1.20%
Unallocated		195		4.63%		0.00%
Total allowance for loan losses	$	4,200		100.00%		100.00%
At September 30, 2017
One-to four-family residential	$	587		16.89%		37.62%
Commercial real estate		1,277		36.75%		43.70%
Construction		490		14.10%		4.77%
Home equity lines of credit		57		1.64%		3.91%
Commercial business		956		27.51%		8.67%
Other		6		0.17%		1.32%
Unallocated		102		2.94%		0.00%
Total allowance for loan losses	$	3,475		100.00%		100.00%
At September 30, 2016
One-to four-family residential	$	542		17.74%		37.83%
Commercial real estate		1,075		35.18%		43.57%
Construction		361		11.81%		3.26%
Home equity lines of credit		71		2.32%		4.80%
Commercial business		976		31.94%		8.49%
Other		9		0.29%		2.04%
Unallocated		22		0.72%		0.00%
Total allowance for loan losses	$	3,056		100.00%		100.00%

15 

Investments

Our Board of Directors has adopted our Investment Policy. This policy determines the types of securities in which we may invest. The Investment Policy is reviewed annually by the Board of Directors and changes to the policy are subject to approval by our Board of Directors. While general investment strategies are developed by the Asset and Liability Committee, the execution of specific actions rests primarily with our President and our Chief Financial Officer. They are responsible for ensuring the guidelines and requirements included in the Investment Policy are followed. They are authorized to execute transactions that fall within the scope of the established Investment Policy up to $2.5 million per transaction individually or $5.0 million per transaction jointly. Investment transactions in excess of $5.0 million must be approved by the Asset and Liability Committee. Investment transactions are reviewed and ratified by the Board of Directors at their regularly scheduled meetings.

Our investments portfolio may include U.S. Treasury obligations, debt and equity securities issued by various government-sponsored enterprises, including Fannie Mae and Freddie Mac, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, investment-grade corporate debt instruments, and municipal securities. In addition, we may invest in equity securities subject to certain limitations and not in excess of Magyar Bank’s Tier 1 capital.

The Investment Policy requires that securities transactions be conducted in a safe and sound manner, and purchase and sale decisions be based upon a thorough analysis of each security to determine its quality and inherent risks and fit within our overall asset/liability management objectives. The analysis must consider the effect of an investment or sale on our risk-based capital and prospects for yield and appreciation.

At September 30, 2020, our securities portfolio totaled $45.0 million, or 6.0% of our total assets. Securities are classified as held-to-maturity or available-for-sale when purchased. At September 30, 2020, $30.4 million of our securities were classified as held-to-maturity and reported at amortized cost, and $14.6 million were classified as available-for-sale and reported at fair value. At September 30, 2020, we held no investment securities classified as held-for-trading.

U.S. Government Agency and Government-Sponsored Enterprise Obligations. At September 30, 2020, our U.S. Government Agency and Government-Sponsored Enterprise Obligations totaled $41.7 million, or 92.8% of our total securities portfolio. Of this amount, $32.2 million were mortgage-backed securities and $9.5 million were debt securities. While these securities generally provide lower yields than other securities in our securities portfolio, we hold these securities, to the extent appropriate, for liquidity purposes and as collateral for certain deposits or borrowings. We invest in these securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by these issuers.

Mortgage-Backed Securities. We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. To a lesser extent, we also invest in mortgage-backed securities issued or sponsored by private issuers. At September 30, 2020, our mortgage-backed securities, including CMOs, totaled $32.5 million, or 72.2% of our total securities portfolio. Included in this balance was $259,000 of mortgage-backed securities issued by private issuers. Our policy is to limit purchases of privately issued mortgage-backed securities to non-high risk securities rated “A” or higher by a nationally recognized credit rating agency. High risk securities generally are defined as those exhibiting significantly greater volatility of estimated average life and price due to changes in interest rates than 30-year fixed rate securities.

Mortgage-backed pass through securities are created by pooling mortgages and issuing a security with an interest rate less than the interest rate on the underlying mortgages. Mortgage-backed pass through securities represent a participation interest in a pool of single-family or multi-family mortgages. As loan payments are made by the borrowers, the principal and interest portion of the payment is passed through to the investor as received. CMOs are also backed by mortgages. However they differ from mortgage-backed pass through securities because the principal and interest payments on the underlying mortgages are structured so that they are paid to the security holders of pre-determined classes or tranches at a faster or slower pace. The receipt of these principal and interest payments, which depends on the estimated average life for each class, is contingent on a prepayment speed assumption assigned to the underlying mortgages. Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities. Mortgage-backed securities and CMOs generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize borrowings and other liabilities.

Mortgage-backed securities present a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating

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to such instruments that can change the net yield on the securities. There is also reinvestment risk associated with the cash flows from such securities or if the securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.

Our mortgage-backed securities portfolio had a weighted average yield of 2.51% at September 30, 2020. The estimated fair value of our mortgage-backed securities portfolio at September 30, 2020 was $33.2 million, which was $783,000 million more than the amortized cost. Mortgage-backed securities in Magyar Bank’s portfolio do not contain sub-prime mortgage loans.

Corporate and Other Securities. At September 30, 2020, the Bank held one corporate note issued by Wells Fargo Bank at its amortized value totaling $3.0 million. Our Investment Policy allows for the purchase of such instruments and requires that corporate debt obligations be rated in one of the four highest categories by a nationally recognized rating service. We may invest up to 25% of Magyar Bank’s investment portfolio in corporate debt obligations and up to 15% of Magyar Bank’s capital in any one issuer.

Equity Securities. At September 30, 2020, we held no equity securities other than $2.0 million in Federal Home Loan Bank of New York stock. The investment in Federal Home Loan Bank of New York stock is classified as a restricted security, carried at cost and evaluated for impairment. Equity securities are not insured or guaranteed investments and are affected by market interest rates and stock market fluctuations. Such investments other than the Federal Home Loan Bank of New York are carried at their fair value and fluctuations in the fair value of such investments, including temporary declines in value, directly affect our net capital position.

Securities Portfolios. The following tables set forth the composition of our securities portfolio (excluding Federal Home Loan Bank of New York common stock) at the dates indicated.

	At September 30, 2020									At September 30, 2019									At September 30, 2018
			Gross		Gross							Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Securities available for sale:	(In thousands)
Obligations of U.S. government agencies:
Mortgage backed securities-residential	$	350	$	14	$	—		$	364	$	480	$	15	$	—		$	495	$	1,463	$	40	$	(8	)	$	1,495
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,092		108		(6	)		9,194	$	14,663	$	80	$	(35	)	$	14,708	$	19,262	$	13	$	(662	)	$	18,613
Debt securities		5,000		3		—			5,003		1,500		—		—			1,500		2,500		—		(139	)		2,361
Total securities available for sale	$	14,442	$	125	$	(6	)	$	14,561	$	16,643	$	95	$	(35	)	$	16,703	$	23,225	$	53	$	(809	)	$	22,469

	At September 30, 2020									At September 30, 2019									At September 30, 2018
			Gross		Gross							Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Securities held to maturity:	(In thousands)
Obligations of U.S. government agencies:
Mortgage backed securities-residential	$	1,453	$	11	$	(33	)	$	1,431	$	445	$	—	$	(54	)	$	391	$	568	$	—	$	(93	)	$	475
Mortgage backed securities-commercial		775		—		—			775		842		—		(6	)		836		904		—		(9	)		895
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities-residential		20,456		697		(3	)		21,150		22,363		276		(47	)		22,592		26,316		4		(867	)		25,453
Debt securities		4,500		1		(16	)		4,485		2,468		10		—			2,478		2,464		—		(142	)		2,322
Private label mortgage-backed securities-residential		259		—		(5	)		254		363		7		—			370		393		1		—			394
Corporate securities		3,000		—		(196	)		2,804		3,000		—		(323	)		2,677		3,000		—		(388	)		2,612
Total securities held to maturity	$	30,443	$	709	$	(253	)	$	30,899	$	29,481	$	293	$	(430	)	$	29,344	$	33,645	$	5	$	(1,499	)	$	32,151

At September 30, 2020, a total of nine securities with an aggregate fair value of $10.0 million had gross unrealized losses of $259,000, or approximately 2.6% of fair value. None of these unrealized losses were considered other-than-temporary.

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Portfolio Maturities and Yields. The composition, maturities and weighted average yields of the investment debt securities portfolio and the mortgage-backed securities portfolio at September 30, 2020 are summarized in the following tables. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

	September 30, 2020
									More Than Five
					Less Than				Years Through				More Than
	One Year or Less				Five Years				Ten Years				Ten Years				Total Securities
	Amortized				Amortized				Amortized				Amortized				Amortized
	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield
	(Dollars in thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	—		—%	$	—		—%	$	—		—%	$	350		3.50%	$	350		3.50%
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		1,284		2.14%		2,771		3.13%		825		2.00%		4,212		2.51%		9,092		2.60%
Debt securities		—		—%		5,000		0.65%		—		—%		—		—%		5,000		0.65%
Total securities available for sale	$	1,284		2.14%	$	7,771		1.54%	$	825		2.00%	$	4,562		2.58%	$	14,442		1.95%

	September 30, 2020
									More Than Five
					Less Than				Years Through				More Than
	One Year or Less				Five Years				Ten Years				Ten Years				Total Securities
	Amortized				Amortized				Amortized				Amortized				Amortized
	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield
	(Dollars in thousands)
Securities held to maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		—		—%		—		—%		—		—%		1,453		3.31%	$	1,453		3.31%
Mortgage-backed securities - commercial		—		—%		—		—%		—		—%		775		0.66%		775		0.66%
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		2,857		1.79%		3,937		2.30%		4,755		2.50%		8,907		2.70%		20,456		2.45%
Debt securities		—		—%		—		—%		4,500		0.75%		—		—%		4,500		0.75%
Private label mortgage-backed securities - residential		—		—%		—		—%		—		—%		259		3.85%		259		3.85%
Corporate securities		—		—%		—		—%		3,000		0.52%		—		—%		3,000		0.52%
Total securities held to maturity	$	2,857		1.79%	$	3,937		2.30%	$	12,255		1.37%	$	11,394		2.67%	$	30,443		2.02%

Sources of Funds

General. Deposits, including certificates of deposit, demand, savings, NOW and money market accounts, have traditionally been the primary source of funds used for our lending and investment activities. We obtain certificates of deposit primarily through our branch network and to a lesser extent via the brokered CD market. We also use borrowings, primarily Federal Home Loan Bank advances, to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds. Additional sources of funds include principal and interest payments from loans and securities, loan and security prepayments and maturities, income on other earning assets and stockholders’ equity. While cash flows from loans and securities payments can be relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from customers within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts, retirement accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We also accept brokered deposits when attractive rates and terms are available. At September 30, 2020, we had $9.4 million in brokered deposits as compared to $6.9 million at September 30, 2019.

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Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. Personalized customer service, long-standing relationships with customers and an active marketing program are relied upon to attract and retain deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. At September 30, 2020, $126.4 million, or 20.4% of our deposit accounts, were certificates of deposit (including individual retirement accounts).

The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.

	September 30,
	2020						2019						2018
					Weighted						Weighted						Weighted
					Average						Average						Average
Deposit Type	Balance		Percent		Rate		Balance		Percent		Rate		Balance		Percent		Rate
	(Dollars in thousands)
Demand accounts	$	163,562		26.45%		0.00%	$	106,422		20.08%		0.00%	$	104,745		19.76%		0.00%
Savings accounts		74,923		12.12%		0.26%		70,598		13.32%		0.67%		81,373		15.35%		0.65%
NOW accounts		65,447		10.58%		0.32%		48,164		9.09%		0.59%		46,336		8.74%		0.32%
Money market accounts		188,023		30.41%		0.47%		188,115		35.49%		1.35%		167,340		31.57%		1.27%
Certificates of deposit		110,650		17.89%		1.49%		100,016		18.87%		1.97%		112,014		21.13%		1.66%
Retirement accounts		15,725		2.54%		1.51%		16,760		3.16%		1.62%		18,329		3.46%		1.41%
Total deposits	$	618,330		100.00%		0.51%	$	530,075		100.00%		1.04%	$	530,137		100.00%		0.93%

As of September 30, 2020, the aggregate amount of outstanding certificates of deposit (including retirement and brokered accounts) in amounts greater than or equal to $100,000 was $90.4 million. The following table sets forth the maturity of these certificates as of September 30, 2020 (in thousands):

Three months or less	$	34,639
Over three months through six months		6,229
Over six months through one year		17,948
Over one year to three years		23,856
Over three years		7,713
Total	$	90,385

At September 30, 2020, $79.1 million of our certificates of deposit had maturities of one year or less. We monitor activity on these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

The following table sets forth the interest-bearing deposit activities for the periods indicated.

	September 30,
	2020		2019			2018
	(In thousands)
Beginning balance	$	423,653	$	425,392		$	416,473
Net deposits before interest credited		26,494		(7,454	)		5,242
Interest credited		4,621		5,715			3,677
Ending balance	$	454,768	$	423,653		$	425,392

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Borrowings. Borrowings increased $31.2 million, or 86.3%, to $67.4 million at September 30, 2020 from $36.2 million at September 30, 2019. The Bank borrowed $36.9 million in Paycheck Protection Program Liquidity Facility (“PPPLF”) advances from the Federal Reserve Bank during the year ended September 30, 2020 to offset the liquidity and capital impacts of the PPP loans. Federal Home Loan Bank of New York advances decreased $5.7 million to $30.5 million at September 30, 2020 from $36.2 million at September 30, 2019 as deposit inflows were used to repay maturing long-term advances.

These aggregate borrowings represent 9.7% of total liabilities and had a weighted average rate of 1.14% at September 30, 2020. Based on eligible collateral pledged to the Federal Home Loan Bank of New York at September 30, 2020, we had an aggregate borrowing capacity of $141.8 million with the Federal Home Loan Bank.

Repurchase agreements are recorded as financing transactions as we maintain effective control over the transferred or pledged securities. The dollar amount of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase the securities are reported as liabilities in our Consolidated Balance Sheets. The securities underlying the agreements are delivered to the party with whom each transaction is executed. Those parties agree to resell to us the identical securities we delivered to them at the maturity or call period of the agreement. The Company did not have any repurchase agreements at or during the year ended September 30, 2020.

Long-term Federal Home Loan Bank of New York and Federal Reserve Bank of New York advances as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	7,130
2022		47,655
2023		4,741
2024		4,384
2025		3,500
Thereafter		—
	$	67,410

Information concerning overnight line of credit advances with the Federal Home Loan Bank of New York is summarized as follows:

	September 30,
	2020		2019
	(Dollars in thousands)
Balance at end of year	$	—	$	—
Weighted average balance during the year	$	—	$	743
Maximum month-end balance during the year	$	—	$	16,800
Average interest rate during the year		—		2.45%

Subsidiary Activities

Magyar Investment Company is a Delaware investment corporation subsidiary for the purpose of buying, selling and holding investment securities. The income earned on Magyar Investment Company’s investment securities may be subject to a lower state tax than that assessed on income earned on investment securities maintained at Magyar Bank.

Hungaria Urban Renewal, LLC is a Delaware limited-liability corporation established in 2002 as a qualified intermediary operating for the purpose of acquiring and developing Magyar Bank’s main office. On January 24, 2006, Magyar Bank exercised a purchase option within its lease from Hungaria Urban Renewal, LLC allowing Magyar Bank to purchase the land and building from this entity. Magyar Bank acquired a 100% interest in Hungaria Urban Renewal, LLC, which has no other business other than owning Magyar Bank’s main office site. As part of a tax abatement agreement with the City of New Brunswick, Magyar Bank’s new office will remain in Hungaria Urban Renewal, LLC’s name.

Magyar Service Corp., a New Jersey corporation, is a wholly owned subsidiary of Magyar Bank. Magyar Service Corp. offers Magyar Bank customers and others a complete range of non-deposit investment products and financial planning

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services, including insurance products, fixed and variable annuities, and retirement planning for individual and commercial customers.

Employees and Human Capital Resources

At September 30, 2020 we employed 98 full-time employees and 6 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.

We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through annual performance and development conversations with employees, internally developed training programs, customized corporate training engagements and seminars, conferences, and other training events employees are encouraged to attend in connection with their job duties.

The safety, health and wellness of our employees is a top priority. The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of our management and staff, we were able to transition during the peak of the pandemic, over a short period of time, to a rotational work schedule allowing employees to effectively work from remote locations and ensure a safely-distanced working environment for employees performing customer facing activities, at branches and operations centers. All employees are asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and have been provided paid time off to cover compensation during such absences. On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, and keeping the employee portion of health care premiums to a minimum.

Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a high-level service provider. We believe our commitment to living out our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees. In addition, nearly all of our employees are stockholders of the Company through participation in our Employee Stock Ownership Plan, which aligns associate and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost to our associates. At September 30, 2020, 25% of our current staff had been with us for fifteen years or more.

FEDERAL AND STATE TAXATION

Federal Taxation

General. Magyar Bancorp, Inc. and Magyar Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The most recent audit of Magyar Bank’s federal tax returns by the Internal Revenue Service was for the period ended September 30, 2013. The audit did not result in any material adjustments to the Company’s tax returns or the Company’s financial statements. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Magyar Bancorp, Inc. or Magyar Bank.

Method of Accounting. For federal income tax purposes, Magyar Bancorp, Inc. reports its income and expenses on the accrual method of accounting and uses a tax year ending September 30th for filing its federal and state income tax returns.

Bad Debt Reserves. Magyar Bank uses the direct charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves) were subject to recapture into taxable income if Magyar Bank failed to meet certain thrift asset and definitional tests.

At September 30, 2020, our total federal pre-base year reserve was approximately $1.3 million. However, under current law, pre-base year reserves remain subject to recapture if Magyar Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

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Net Operating Loss Carryovers. At September 30, 2020, a financial institution was able to carry back net operating losses to the preceding five taxable years and forward to the succeeding 20 taxable years. At September 30, 2020, the Company did not have any federal or state net operating loss carry forwards available to offset future taxable income for tax reporting purposes.

Corporate Dividends-Received Deduction. Magyar Bancorp, Inc. may exclude from its federal taxable income 100% of dividends received from Magyar Bank as a wholly owned subsidiary. The corporate dividends-received deduction is 65% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 50% dividends-received deduction is available for dividends received from corporations owned less than 20% by the recipient corporation.

State Taxation

New Jersey State Taxation. The income of savings institutions in New Jersey, which is calculated based on federal taxable income, subject to certain adjustments, is subject to New Jersey tax. Magyar Bancorp, Inc., Magyar Bank, Magyar Service Corporation, and Magyar Investment Company filed separate New Jersey corporate income tax returns for their fiscal years ended September 30, 2020.

For the tax years ending after July 31, 2019, New Jersey tax law requires members of an affiliated group where there is common ownership to calculate their corporation business tax on a combined or consolidated basis. Magyar Bancorp, Inc., Magyar Bank, Magyar Service Corporation, and Magyar Investment Company will file a New Jersey tax return on a consolidated basis for the year ended September 30, 2020.

Magyar Bancorp, Inc., Magyar Bank, Magyar Service Corp., and Magyar Investment Company are not currently under audit with respect to their New Jersey income tax returns. Their respective state tax returns have been audited within the past three years.

Delaware and New Jersey State Taxation. As a Delaware holding company not earning income in Delaware, Magyar Bancorp, Inc. is exempt from Delaware corporate income tax, but is required to file annual returns and pay annual fees and a franchise tax to the State of Delaware.

Magyar Bancorp, Inc. is subject to New Jersey corporate income taxes in the same manner as described above for Magyar Bank.

SUPERVISION AND REGULATION

General

Magyar Bank is a New Jersey-chartered savings bank, and its deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance Fund (“DIF”). Magyar Bank is subject to extensive regulation, examination and supervision by the Commissioner of the New Jersey Department of Banking and Insurance (the “Commissioner”) as the issuer of its charter, and by the FDIC as deposit insurer and its primary federal regulator. Magyar Bank must file reports with the Commissioner and the FDIC concerning its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions and opening or acquiring branch offices. The Commissioner and the FDIC conduct periodic examinations to assess Magyar Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the deposit insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

Magyar Bancorp, Inc., as a bank holding company controlling Magyar Bank, is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and regulations of the FRB under the BHCA and to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey Banking Act”), and to the regulations of the Commissioner under the New Jersey Banking Act applicable to bank holding companies. Magyar Bank and Magyar Bancorp, Inc. are required to file reports with, and otherwise comply with the rules and regulations of the FRB and the Commissioner. Magyar Bancorp, Inc. is required to file certain reports with, and otherwise comply with, the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

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Any change in such laws and regulations, whether by the Commissioner, the Federal Deposit Insurance Corporation, the Federal Reserve Board or through legislation, could have a material adverse impact on Magyar Bank and Magyar Bancorp, Inc. and their operations and stockholders.

Certain of the laws and regulations applicable to Magyar Bank and Magyar Bancorp, Inc. are summarized below. These summaries do not purport to be complete and are qualified in their entirety by reference to such laws and regulations.

New Jersey Banking Regulation

Activity Powers. Magyar Bank derives its lending, investment and other activity powers primarily from the applicable provisions of the New Jersey Banking Act and its related regulations. Under these laws and regulations, savings banks, including Magyar Bank, generally may invest in:

· real estate mortgages;

· consumer and commercial loans;

· specific types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies;

· certain types of corporate equity securities; and

· certain other assets.

A savings bank may also make other investments pursuant to “leeway” authority that permits investments not otherwise permitted by the New Jersey Banking Act. “Leeway” investments must comply with a number of limitations on the individual and aggregate amounts of “leeway” investments. A savings bank may also exercise trust powers upon approval of the Commissioner. New Jersey savings banks may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state savings banks or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the Commissioner by regulation or by specific authorization is required. The exercise of these lending, investment and activity powers are limited by federal law and regulations. See “Federal Banking Regulation-Activity Restrictions on State-Chartered Banks” below.

Loans-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey-chartered savings bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds. A savings bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act. Magyar Bank currently complies with applicable loans-to-one-borrower limitations.

Dividends. Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the savings bank. In addition, a stock savings bank may not pay a dividend unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively, the payment of the dividend would not reduce the surplus. Federal law may also limit the amount of dividends that may be paid by Magyar Bank. See “Federal Banking Regulation-Prompt Corrective Action” below.

Minimum Capital Requirements. Regulations of the Commissioner impose on New Jersey-chartered depository institutions, including Magyar Bank, minimum capital requirements similar to those imposed by the Federal Deposit Insurance Corporation on insured state banks. See “Federal Banking Regulation-Capital Requirements.”

Examination and Enforcement. The NJDBI may examine Magyar Bank whenever it deems an examination advisable. The NJDBI examines Magyar Bank at least every two years. The Commissioner may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any director, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Commissioner has ordered the activity to be terminated, to show cause at a hearing before the Commissioner why such person should not be removed. The Commissioner also has authority to appoint a conservator or receiver for a savings bank under certain circumstances such as insolvency or unsafe or unsound condition to transact business.

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Federal Banking Regulation

Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets, and a Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.

In assessing an institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

At September 30, 2020, Magyar Bank’s common equity Tier 1 capital to risk-based assets ratio was 11.93%, total capital to risk-based assets was 13.08%, and Tier 1 capital to total assets leverage ratio was 8.30%.

Legislation enacted in May 2018 required the federal banking agencies to establish an optional “community bank leverage ratio” of between 8% to 10% Tier 1 equity/consolidated assets (the “Community Bank Leverage Ratio”). The Community Bank Leverage Ratio is available to institutions with less than $10 billion of assets that meet certain other requirements. Institutions with capital meeting or exceeding the specified requirements and electing to follow the alternative regulatory capital structure will be considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The federal banking agencies adopted final regulations that set 9.0% as the minimum capital for the Community Bank Leverage Ratio, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that ceases to meet any qualifying criteria is provided with a two-quarter grace period to either comply with the community bank leverage ratio requirements or comply with the general capital regulations, including the risk-based capital requirements.

Section 4012 of the CARES Act required that the community bank leverage ratio be temporarily lowered to 8%. The federal regulators issued a rule implementing the lower ratio effective April 23, 2020. The rule also established a two-quarter grace period for a qualifying institution whose leverage ratio falls below the 8% community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7% or greater. Another rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and 9% thereafter.

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Prompt Corrective Action. The FDIC Improvement Act established a system of prompt corrective action to resolve the problems of undercapitalized institutions. The FDIC has adopted regulations to implement the prompt corrective action legislation. The regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. Effective March 31, 2020, qualifying community banking organizations that elect to use the Community Bank Leverage Ratio framework and that maintain a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements to be deemed well-capitalized.

Undercapitalized institutions are subject to a variety of mandatory supervisory measures including the requirement to file a capital plan for the FDIC’s approval and dividend restrictions as well as other discretionary actions by the regulator.

The FDIC is required, with some exceptions, to appoint a receiver or conservator for an insured state bank if that bank is “critically undercapitalized.” For this purpose, “critically undercapitalized” means having a ratio of tangible capital to total assets of less than 2%. The FDIC may also appoint a conservator or receiver for a state bank on the basis of the institution’s financial condition or upon the occurrence of certain events, including:

· insolvency, or when the assets of the bank are less than its liabilities to depositors and others;

· substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices;

· existence of an unsafe or unsound condition to transact business;

· likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and

· insufficient capital, or the incurring or likely incurring of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.

Activity Restrictions on State-Chartered Banks. Federal law and FDIC regulations generally limit the activities and investments of state-chartered Federal Deposit Insurance Corporation-insured banks and their subsidiaries to those permissible for national banks and their subsidiaries, unless such activities and investments are specifically exempted by law or consented to by the Federal Deposit Insurance Corporation.

Before making a new investment or engaging in a new activity that is not permissible for a national bank or otherwise permissible under federal law or the FDIC regulations, an insured bank must seek approval from the FDIC to make such investment or engage in such activity. The FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the DIF. Certain activities of subsidiaries that are engaged in activities permitted for national banks only through a “financial subsidiary” are subject to additional restrictions.

Federal law permits a state-chartered savings bank to engage, through financial subsidiaries, in any activity in which a national bank may engage through a financial subsidiary and on substantially the same terms and conditions. In general, the law permits a national bank that is well-capitalized and well-managed to conduct, through a financial subsidiary, any activity permitted for a financial holding company other than insurance underwriting, insurance investments, real estate investment or development or merchant banking. The total assets of all such financial subsidiaries may not exceed the lesser of 45% of the bank’s total assets or $50 million. The bank must have policies and procedures to assess the financial subsidiary’s risk and protect the bank from such risk and potential liability, must not consolidate the financial subsidiary’s assets with the bank’s and must exclude from its own assets and equity all equity investments, including retained earnings, in the financial subsidiary. State-chartered savings banks may retain subsidiaries in existence as of March 11, 2000 and may engage in activities that are not authorized under federal law. Although Magyar Bank meets all conditions necessary to establish and engage in permitted activities through financial subsidiaries, it has not yet determined to engage in such activities.

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Federal Home Loan Bank System. Magyar Bank is a member of the Federal Home Loan Bank system, which consists of eleven regional federal home loan banks, each subject to supervision and regulation by the Federal Housing Finance Board (“FHFB”). The federal home loan banks provide a central credit facility primarily for member thrift institutions as well as other entities involved in home mortgage lending. Magyar Bank, as a member of the Federal Home Loan Bank of New York, is required to purchase and hold shares of capital stock in the Federal Home Loan Bank of New York in specified amounts.

As of September 30, 2020, Magyar Bank was in compliance with these requirements.

Enforcement. The Federal Deposit Insurance Corporation has extensive enforcement authority over insured savings banks, including Magyar Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices.

Deposit Insurance. Magyar Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. Deposit accounts at Magyar Bank are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $250,000 for each separately insured depositor.

The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based assessment system, banks that are deemed to be less risky pay lower assessments. Assessments for institutions with assets of less than $10 billion of assets, such as Magyar Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure of an institution’s failure within three years.

By FDIC rule effective April 1, 2011, the deposit insurance assessment range was set at 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the Deposit Insurance Fund’s reserve ratio reaching 1.15%, effective July 1, 2016, the assessment range was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to achieve the 1.35% ratio by September 30, 2020. The law required insured institutions with assets of $10 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subjected to a surcharge to achieve that goal. The 1.35% ratio was reached effective September 30, 2018. As a result, the surcharges ceased and institutions with less than $10 billion of assets received credits for assessment payments made that contributed to achieving the 1.35% ratio. These credits were exhausted on September 30, 2020. The Dodd-Frank Act also eliminated the 1.5% statutory maximum ratio for the Deposit Insurance Fund and delegated to the FDIC the authority to set a maximum ratio. The FDIC has established a long-term target reserve ratio of 2.0% for the Deposit Insurance Fund, and it is expected that the current deposit insurance assessment structure will continue until the target reserve ratio is attained.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to termination of its deposit insurance.

Transactions with Affiliates of Magyar Bank. Magyar Bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W promulgated by the Board of Governors of the Federal Reserve System. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as Magyar Bancorp, Inc. and Magyar Bancorp, MHC. In general, loan transactions between an insured depository institution and its affiliates are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliates are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral of specific types and in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the savings association. In addition, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. Magyar Bank is in compliance with these requirements.

Prohibitions Against Tying Arrangements. Banks are subject to the prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A depository institution is prohibited, subject to some exceptions, from extending credit to or

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offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Community Reinvestment Act and Fair Lending Laws. All FDIC insured institutions have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighbourhoods. In connection with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s record of compliance with the CRA. Among other things, the current CRA regulations replace the prior process-based assessment factors with a new evaluation system that rates an institution based on its actual performance in meeting community needs. In particular, the current evaluation system focuses on three tests:

· a lending test, to evaluate the institution’s record of making loans in its service areas;

· an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and

· a service test, to evaluate the institution’s delivery of services through its service channels.

An institution’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. We received an “outstanding” CRA rating in our most recently completed federal examination, which was conducted by the FDIC in 2019.

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.

Loans to a Bank’s Insiders

Federal Regulation. A bank’s loans to its executive officers, directors, any owner of 10% or more of its stock (each, an insider) and any of certain entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, which is comparable to the loans-to-one-borrower limit applicable to Magyar Bank’s loans. See “New Jersey Banking Regulation—Loans-to-One Borrower Limitations.” All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s unimpaired capital and surplus. Federal regulation also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the Board of Directors of the bank, with any interested directors not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either (1) $250,000 or (2) the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus. Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those that are prevailing at the time for comparable transactions with other persons.

An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.

In addition, federal law prohibits extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent banking relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavourable features.

New Jersey Regulation. Provisions of the New Jersey Banking Act impose conditions and limitations on the liabilities to a savings bank of its directors and executive officers and of corporations and partnerships controlled by such persons, that are comparable in many respects to the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed above. The New Jersey Banking Act also provides that a savings bank that is in compliance with federal law is deemed to be in compliance with such provisions of the New Jersey Banking Act.

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Federal Reserve System

Federal Reserve Board regulations require all depository institutions to maintain reserves at specified levels against their transaction accounts (primarily NOW and regular checking accounts). At September 30, 2020, Magyar Bank was in compliance with the Federal Reserve Board’s reserve requirements. Savings banks, such as Magyar Bank, are authorized to borrow from the Federal Reserve Bank “discount window.” Magyar Bank is deemed by the Federal Reserve Board to be generally sound and thus is eligible to obtain secondary credit from its Federal Reserve Bank. Generally, secondary credit is extended on a very short-term basis to meet the liquidity needs of the institution. Loans must be secured by acceptable collateral and carry a rate of interest above the Federal Open Market Committee’s federal funds target rate.

The USA PATRIOT Act

The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with these regulations.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (“SOX”) is a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by Section 302(a) of SOX, Magyar Bancorp, Inc.’s Chief Executive Officer and Chief Financial Officer each are required to certify that its quarterly and annual reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls. Magyar Bancorp, Inc. has existing policies, procedures and systems designed to comply with these regulations, and is further enhancing and documenting such policies, procedures and systems to ensure continued compliance with these regulations.

SOX Section 404(b) requires independent auditors to report on management’s assessment of internal controls over financial reporting.  The 2010 Dodd-Frank Act provided an exemption on compliance with SOX Section 404(b) for registrants that are neither accelerated nor large accelerated filers as defined by Rule 12b-2 of the Securities and Exchange Act of 1934. The inclusion of the exemption in the final reform legislation permanently exempted the auditor attestation requirement and significantly reduced the compliance burdens of smaller reporting companies.  Disclosure of management attestations on internal control over financial reporting continues to be required for smaller reporting companies.

Holding Company Regulation

Federal Regulation. Magyar Bancorp, Inc. is regulated as a bank holding company. Bank holding companies are subject to examination, regulation and periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board. Bank holding companies are generally subject to consolidated capital requirements established by the FRB. The Dodd-Frank Act required the FRB to amend its consolidated minimum capital requirements for bank holding companies to make them no less stringent than those applicable to insured depository institutions themselves. However, legislation was enacted in December 2014 which required the FRB to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to generally extend the applicability of the exemption from $500 million to $1 billion in assets. Furthermore, the Economic Growth Act expanded the category of holding companies that may rely on the policy statement by raising the maximum amount of assets a qualifying holding company may have from $1 billion to $3 billion. Consequently, bank holding companies of under $3 billion in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases.

Regulations of the FRB provide that a bank holding company must serve as a source of strength to any of its subsidiary banks and must not conduct its activities in an unsafe or unsound manner. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations. Under the prompt corrective action provisions of the Act, a bank holding company parent of an undercapitalized subsidiary bank would be directed to guarantee, within

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limitations, the capital restoration plan that is required of such an undercapitalized bank. See “Federal Banking Regulation—Prompt Corrective Action.” If the undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the FRB may prohibit the bank holding company parent of the undercapitalized bank from paying any dividend or making any other form of capital distribution without the prior approval of the FRB.

As a bank holding company, Magyar Bancorp, Inc. is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval is required for Magyar Bancorp, Inc. to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company.

A bank holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. Such notice and approval is not required for a bank holding company that would be treated as “well capitalized” under applicable regulations of the FRB, that has received a composite “1” or “2” rating, as well as a “satisfactory” rating for management, at its most recent bank holding company inspection by the FRB, and that is not the subject of any unresolved supervisory issues.

In addition, a bank holding company that does not elect to be a financial holding company under federal regulation, is generally prohibited from engaging in, or acquiring direct or indirect control of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be permissible. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking as to be permissible are:

· making or servicing loans;

· performing certain data processing services;

· providing discount brokerage services, or acting as fiduciary, investment or financial advisor;

· leasing personal or real property;

· making investments in corporations or projects designed primarily to promote community welfare; and

· acquiring a savings and loan association.

Bank holding companies that elect to be a financial holding company may engage in activities that are financial in nature or incident to activities which are financial in nature, including investment banking and insurance underwriting. Magyar Bancorp, Inc. has not elected to be a financial holding company, although it may seek to do so in the future. Bank holding companies may elect to become a financial holding company if:

· each of its depository institution subsidiaries is “well capitalized;”

· each of its depository institution subsidiaries is “well managed;”

· each of its depository institution subsidiaries has at least a “satisfactory” Community Reinvestment Act rating at its most recent examination; and

· the bank holding company has filed a certification with the FRB stating that it elects to become a financial holding company.

Under federal law, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law would be applicable potentially to Magyar Bancorp, Inc. if it ever acquired as a separate subsidiary a depository institution in addition to Magyar Bank.

It has been the policy of many mutual holding companies to waive the receipt of dividends declared by its subsidiary. In connection with its approval of the reorganization, however, the FRB required Magyar Bancorp, MHC to obtain prior FRB approval before it may waive any dividends. As of the date hereof, FRB policy is to prohibit a mutual bank holding company from waiving the receipt of dividends from its holding company or bank subsidiary, and management is not aware of any

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instance in which the FRB has given its approval for a mutual bank holding company to waive dividends. It is not currently intended that Magyar Bancorp, MHC will waive dividends declared by Magyar Bancorp, Inc. as long as Magyar Bancorp, MHC is regulated by the Federal Reserve Board.

Conversion of Magyar Bancorp, MHC to Stock Form. Magyar Bancorp, MHC is permitted to convert from the mutual form of organization to the capital stock form of organization (a “Conversion Transaction”). There can be no assurance when, if ever, a Conversion Transaction will occur, and the Board of Directors has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction a new stock holding company may be formed as the successor to Magyar Bancorp, Inc. (the “New Holding Company”), Magyar Bancorp, MHC’s corporate existence would end, and certain depositors of Magyar Bank would receive the right to subscribe for additional shares of the New Holding Company. In a Conversion Transaction, each share of common stock held by stockholders other than Magyar Bancorp, MHC (“Minority Stockholders”) would be converted into a number of shares of common stock of the New Holding Company determined pursuant to an exchange ratio that ensures that Minority Stockholders own the same percentage of common stock in the New Holding Company as they owned in Magyar Bancorp, Inc. immediately before the Conversion Transaction, subject to any adjustment required by regulation or regulatory policy. The total number of shares held by Minority Stockholders after a Conversion Transaction also would be increased by any purchases by Minority Stockholders in the stock offering conducted as part of the Conversion Transaction.

Any Conversion Transaction would require the approval of a majority of the outstanding shares of Magyar Bancorp, Inc. common stock held by Minority Stockholders and the approval of a majority of the eligible votes of depositors of Magyar Bank.

New Jersey Regulation. Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company. The New Jersey Banking Act defines the terms “company” and “bank holding company” as such terms are defined under the BHCA. Each bank holding company controlling a New Jersey-chartered bank or savings bank must file certain reports with the Commissioner and is subject to examination by the Commissioner.

Acquisition of Magyar Bancorp, Inc. Under federal law and under the New Jersey Banking Act, no person may acquire control of Magyar Bancorp, Inc. without first obtaining approval of such acquisition of control by the Federal Reserve Board and the Commissioner.

Federal Securities Laws. Magyar Bancorp, Inc. common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Magyar Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

ITEM 1A. Risk Factors

In addition to factors discussed in the description of our business and elsewhere in this report, the following are factors that could adversely affect our future results of operations and financial condition.

Economic and Market Area

The COVID-19 Pandemic Has and Will Continue to Pose Risks and Could Harm Our Business, Results of Operations and Prospects.

The COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on the business of the Company, its customers, employees and third-party service providers. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened in an efficient manner. Additionally, the responses of various governmental and

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nongovernmental authorities to curtail business and consumer activities in an effort to mitigate the pandemic will have material long-term effects on the Company and its customers which are difficult to quantify in the near-term or long-term.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company is subject to the following risks, any of which could have a material, adverse effect on the business, financial condition, liquidity, and results of operations of the Company:

• risks to the capital markets that may impact the performance of the investment securities portfolio of the Company, as well as limit our access to capital markets and other funding sources;

• effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating the companies’ financial reporting and internal controls;

• declines in demand for loans and other banking services and products, as well as a decline in the credit quality of our loan portfolio, owing to the effects of COVID-19 in the markets served by the Company;

• if the economy is unable to substantially reopen or reopen in an efficient manner, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may continue to decline in value, which could cause loan losses to increase;

• allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments;

• as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on assets may decline to a greater extent than the decline in cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income;

• cyber security risks are increased as the result of an increase in the number of employees working remotely;

• declines in demand resulting from adverse impacts of the disease on businesses deemed to be “non-essential” by governments in the markets served by the Company; and

• increasing or protracted volatility in the price of the Company’s common stock.

A Worsening of Economic Conditions Could Reduce Demand for Our Products and Services and/or Result in Increases in Our Level of Non-performing Loans, Which Could Have an Adverse Effect on Our Results of Operations.

Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in New Jersey and the greater New York metropolitan area. Local economic conditions have a significant impact on our commercial real estate and construction and consumer loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. Almost all of our loans are to borrowers located in or secured by collateral located in New Jersey and the New York metropolitan area.

In addition, the COVID-19 pandemic is having an adverse impact on the Company, its customers and the communities it serves. The adverse effect of the COVID-19 pandemic on the Company, its customers and the communities where it operates may adversely affect the Company’s business, results of operations and financial condition for an indefinite period of time.

A deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

• demand for our products and services may decline;

• loan delinquencies, problem assets and foreclosures may increase;

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• collateral for loans, especially real estate, may decline in value, in turn reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans;

• the value of our securities portfolio may decline; and

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

Moreover, a significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

Strong Competition Within Our Market Area May Limit Our Growth and Profitability.

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have substantially greater resources and lending limits than we, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets. For additional information see “Business of Magyar Bank-Competition.”

Interest Rate and Asset Quality

Changes in Interest Rates May Hurt our Profits and Asset Values.

Our earnings largely depend on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between:

· the interest income we earn on our interest-earning assets, such as loans and securities; and

· the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. While we have taken steps to attempt to reduce our exposure to increases in interest rates, historically our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. Likewise, in a period of falling interest rates, the interest expense paid on our liabilities may not decrease as rapidly as the interest income received on our assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management of Market Risk.”

In addition, changes in interest rates can affect the average life of loans and mortgage-backed securities. A reduction in interest rates causes increased prepayments of loans and mortgage-backed securities as borrowers tend to refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest the funds from faster prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans.

Changes in interest rates also affect the current market value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At September 30, 2020, the fair value of our total securities portfolio was $45.5 million. The unrealized net loss on securities totaled $259,000 on a pre-tax basis at September 30, 2020.

We evaluate interest rate sensitivity using models that estimate the change in Magyar Bank’s net interest income over a range of interest rate scenarios. At September 30, 2020, in the event of an immediate 200 basis point increase in interest

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rates, the model projects that we would experience a $890,000, or 4.37%, decrease in net interest income in the first year following the change in interest rates, and a $306,000, or 1.32%, decrease in net interest income in the second year following the change in interest rates. At September 30, 2020, in the event of an immediate 100 basis point decrease in interest rates, the model projects that we would experience a $446,000, or 1.89%, decrease in net interest income in the first year following the change in interest rates, and a $873,000, or 3.76%, decrease in net interest income in the second year following the change in interest rates.

At September 30, 2020, our available-for-sale securities portfolio totaled $14.6 million, which included $10.0 million mortgage-backed securities. To the extent interest rates increase and the value of our available-for-sale portfolio decreases, our stockholders’ equity will be adversely affected.

Because We Intend to Continue our Emphasis on the Origination of Commercial Business Loans and Commercial Real Estate Loans, Our Lending Risk Has Increased in Recent Years and May Increase in Future Years.

At September 30, 2020, our portfolio of commercial business and commercial real estate loans totaled $349.1 million (including $56.0 in PPP loans), or 57.1% of our total loans, compared to $281.3 million, or 53.8% of our total loans at September 30, 2019 and $272.7 million, or 53.2% of our total loans at September 30, 2018. It is our intent to continue to emphasize the origination of commercial business and commercial real estate loans. Commercial business and commercial real estate loans generally have more risk than one-to four-family residential mortgage loans. At September 30, 2020, our non-performing loans increased $2.8 million to $9.7 million from $6.9 million at September 30, 2019. Because the repayment of these loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of these loans has been and may continue to be affected by adverse conditions in the real estate market or the local economy. Further, these loans typically have larger loan balances, and several of our borrowers have more than one commercial business and commercial real estate loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial business or commercial real estate loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral. Because we plan to continue to emphasize the origination of these loans, it may be necessary to increase our allowance for loan losses because of the increased credit risk associated with these types of loans. Any increase to our allowance for loan losses would adversely affect our earnings.

If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could Decrease.

Our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, requiring additions to our allowance, which could materially decrease our net income. The allowance for loan losses increased by $1.5 million during the year ended September 30, 2020 to $6.4 million. The increases were attributable to growth in total loans receivable and higher adjustments to the historical loss factors for economic conditions relating to the COVID-19 pandemic. Our allowance for loan losses was 1.05% of total loans and 65.8% of total non-performing loans at September 30, 2020. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. Based on this review, we believe our allowance for loan losses is adequate to absorb losses in our loan portfolio as of September 30, 2020.

Bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities will have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board has adopted a new accounting standard that is referred to as Current Expected Credit Loss, or CECL. The implementation of CECL has been delayed for smaller reporting companies, such as the Company, until January 2023. CECL will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan losses. Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

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Regulatory Matters

If We Declare Dividends on Our Common Stock, Magyar Bancorp, MHC Will Be Prohibited from Waiving the Receipt of Dividends by Current Federal Reserve Board Policy, Which May Result in Lower Dividends for All Other Stockholders.

The Board of Directors of Magyar Bancorp, Inc. has the authority to declare dividends on its common stock, subject to statutory and regulatory requirements. So long as Magyar Bancorp, MHC is regulated by the FRB, if Magyar Bancorp, Inc. pays dividends to its stockholders, it also will be required to pay dividends to Magyar Bancorp, MHC, unless Magyar Bancorp, MHC is permitted by the FRB to waive the receipt of dividends. The FRB’s current position is to not permit a mutual holding company to waive dividends declared by its subsidiary. Accordingly, because dividends will be required to be paid to Magyar Bancorp, MHC along with all other stockholders, the amount of dividends available for all other shareholders will be less than if Magyar Bancorp, MHC were permitted to waive the receipt of dividends.

Magyar Bancorp, MHC Exercises Voting Control Over Magyar Bancorp, Inc.; Public Stockholders Own a Minority Interest.

Magyar Bancorp, MHC owns a majority of Magyar Bancorp, Inc.’s common stock and, through its Board of Directors, exercises voting control over the outcome of all matters put to a vote of stock holders (including the election of directors), except for matters that require a vote greater than a majority. Public stockholders own a minority of the outstanding shares of Magyar Bancorp, Inc.’s common stock. The same directors and officers who manage Magyar Bancorp, Inc. and Magyar Bank also manage Magyar Bancorp, MHC. In addition, regulatory restrictions applicable to Magyar Bancorp, MHC prohibit the sale of Magyar Bancorp, Inc. unless the mutual holding company first undertakes a second-step conversion.

We Operate in a Highly Regulated Environment and May Be Adversely Affected by Changes in Laws and Regulations.

Magyar Bank is subject to extensive regulation, supervision and examination by the NJDBI, its chartering authority, and by the Federal Deposit Insurance Corporation, which insures Magyar Bank’s deposits. As a bank holding company, Magyar Bancorp, Inc. is subject to regulation and supervision by the Federal Reserve Board. Such regulation and supervision govern the activities in which financial institutions and their holding companies may engage and are intended primarily for the protection of the federal deposit insurance fund and depositors. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operations of financial institutions, the classification of assets by financial institutions and the adequacy of financial institutions’ allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on Magyar Bank and Magyar Bancorp, Inc.

Magyar Bank’s operations are also subject to extensive regulation by other federal, state and local governmental authorities, and are subject to various laws and judicial and administrative decisions that impose requirements and restrictions on operations. These laws, rules and regulations are frequently changed by legislative and regulatory authorities. There can be no assurance that changes to existing laws, rules and regulations, or any other new laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or Other Laws and Regulations Could Result in Fines or Sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

Security

System Failure or Breaches of Our Network Security Could Subject Us to Increased Operating Costs as well as Litigation and Other Liabilities.

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The computer systems and network infrastructure we and our third-party service providers use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures designed to prevent such damage, our security measures may not be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.

It is possible that a significant amount of time and money may be spent to rectify the harm caused by a breach or hack. While we have general liability insurance, there are limitations on coverage as well as dollar amount. Furthermore, cyber incidents carry a greater risk of injury to our reputation. Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer loss.

Risks Associated with Cyber-Security Could Negatively Affect Our Earnings.

The financial services industry has experienced an increase in both the number and severity of reported cyber attacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions. We have established policies and procedures to prevent or limit the impact of security breaches, but such events may still occur or may not be adequately addressed if they do occur. Although we rely on security safeguards to secure our data, these safeguards may not fully protect our systems from compromises or breaches.

We also rely on the integrity and security of a variety of third party processors, payment, clearing and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship with us. Failure by these participants or their systems to protect our customers' transaction data may put us at risk for possible losses due to fraud or operational disruption.

Our customers are also the target of cyber-attacks and identity theft. Large scale identity theft could result in customers' accounts being compromised and fraudulent activities being performed in their name. We have implemented certain safeguards against these types of activities but they may not fully protect us from fraudulent financial losses.

The occurrence of a breach of security involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

ITEM 1B. Unresolved Staff Comments

Not required for smaller reporting companies.

ITEM 2. Properties

The following table provides certain information with respect to our offices as of September 30, 2020:

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	Leased or	Original Year	Year of
Location	Owned	Leased or Acquired	Lease Expiration
Main Office:
400 Somerset Street	Owned	2005	-
New Brunswick, New Jersey, 08901
Full - Service Branches:
3050 State Route  27	Owned	1969	-
Kendall Park, New Jersey, 08824
596 Milltown Road	Leased	2002	2021
North Brunswick, New Jersey, 08902
1000 Route 202 South	Leased	2006	2031
Branchburg, New Jersey, 08876
475 North Bridge Street	Leased	2010	2025
Bridgewater, New Jersey, 08807
1167 Inman Avenue	Leased	2011	2026
Edison, New Jersey, 08820
1199 Amboy Avenue	Leased	2017	2027
Edison, New Jersey, 08837

The net book value of our premises, land and equipment was approximately $14.7 million at September 30, 2020.

For information regarding Magyar Bancorp, Inc.’s investment in mortgages and mortgage-related securities, see “Item 1. Business” herein.

ITEM 3. Legal Proceedings

In the ordinary course of business, we are a party to various legal actions which are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is believed to be immaterial to our consolidated financial position, results of operations and cash flows.

ITEM 4. Mine Safety Disclosures

Not applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

(a) Our shares of common stock are traded on the NASDAQ Global Market under the symbol “MGYR.” At September 30, 2020, Magyar Bancorp, MHC owned 3,200,450 shares, or 55.0% of the outstanding shares of our common stock. The approximate number of holders of record of Magyar Bancorp, Inc.’s common stock as of September 30, 2020 was 381. Certain shares of Magyar Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

Dividend payments by Magyar Bancorp, Inc. would be dependent primarily on dividends it receives from Magyar Bank, because Magyar Bancorp, Inc. has no source of income other than dividends from Magyar Bank, earnings from the investment of proceeds from the sale of shares of common stock retained by Magyar Bancorp, Inc., and interest payments with respect to Magyar Bancorp, Inc.’s loan to the Employee Stock Ownership Plan. For more

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information on regulatory restrictions regarding the payment of dividends, see “Item 1- Business- Supervision and Regulation- New Jersey Banking Regulation-Dividends.”

Other than its Employee Stock Ownership Plan, Magyar Bancorp, Inc. does not have any equity compensation plans that were not approved by stockholders. There were no stock options or shares of restricted stock available for issuance with respect to Magyar Bancorp’s equity compensation plans at September 30, 2020

(b) Not applicable.

(c) Share repurchases.

The Company completed its first stock repurchase program of 130,927 shares in November 2007 and announced in November 2007 a second repurchase program of up to 5% of its publicly-held outstanding shares of common stock, or 129,924 shares, under which 91,000 shares had been repurchased as of September 30, 2020 at an average price of $8.41.

During the year ended September 30, 2020, the Company repurchased 10,000 shares at an average price of $9.03 which has reduced outstanding shares to 5,810,746.

ITEM 6. Selected Financial Data

Not required for smaller reporting companies.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Magyar Bancorp, Inc. (the “Company”) is a Delaware-chartered mid-tier 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, 2020, the Company’s total assets grew $123.7 million, or 19.6%, to $754.0 million. The increase was attributable to a to a $84.9 million, or 16.4%, increase in loans receivable, net of allowance of loss, a $40.3 million, or 187.5%, increase in cash and cash equivalents, and a $4.1 million increase in other assets from the adoption of ASU 2016-02 (Leases). Partially offsetting these increases were decreases in OREO, which declined $4.9 million during the year, and in investment securities, which declined $1.2 million during the year.

Total deposits increased $88.3 million, or 16.6%, to $618.3 million during the year ended September 30, 2020. The growth in deposits during the year ended September 30, 2020 occurred in non-interest checking account balances, which increased $57.1 million, or 53.7%, to $163.6 million, in interest-bearing checking account balances, which increased $17.3 million, or 35.9% to $65.4 million, in certificates of deposit (including individual retirement accounts), which increased $9.6 million, or 8.2%, to $126.4 million, and in savings account balances, which increased $4.3 million, or 6.1%, to $74.9 million. Offsetting these increases was a $92,000, or 0.05%, decrease in money market account balances, to $188.0 million.

The Company’s net income decreased $806,000, or 26.9%, to $2.2 million for the year ended September 30, 2020 compared with net income of $3.0 million for the year ended September 30, 2019. The decrease in net income between the twelve month periods was primarily attributable to higher provisions for loan loss, which increased $998,000 and lower other non-interest income, which decreased $420,000, both of which were the result of the Coronavirus/COVID-19 pandemic.

Throughout 2021, we expect to continue increasing our commercial real estate and commercial business loans while managing non-interest expenses in order to increase profitability of the Company.

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Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions or assessments. We consider the following to be our critical accounting policies.

Allowance for Loan Loss. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses in the loan portfolio both probable and reasonably estimable at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical. Due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses, the methodology for determining the allowance for loan losses is considered a critical accounting policy by management.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. 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 loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as impaired through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loan and discounted cash flows. Specific impairment allowances are established as required by this analysis. However, the Bank’s Federal and State regulators generally require that the specific reserve against impaired collateral-dependent loans be charged-off, reducing the carrying balance of the loan and allowance for loan loss. The general component is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations in establishing the general portion of the reserve. This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the allowance for loan losses.

Actual loan losses may be significantly greater than the allowances we have established, which could have a material negative effect on our financial results.

Deferred Income Taxes. The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Deferred tax assets are likely to be realized and therefore do not have a valuation allowance.

Impact of the Coronavirus/COVID-19 Pandemic

The extraordinary impact of the Coronavirus/COVID-19 (“COVID-19”) created an unprecedented environment for consumers and businesses alike. To protect its employees and customers from potential exposure to the virus, all Magyar Bank lobbies were closed from March 20, 2020 through June 8, 2020. During that period the Bank continued to serve its community through its drive-up lanes, online banking, mobile services, and ATMs. Operational staff worked on a rotational

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basis and between their primary offices and our disaster recovery location to limit their potential exposure to COVID-19 and to continue providing banking services to our customers.

To assist its customers, Magyar Bank offered loan payment deferrals to borrowers unable to pay due to the effects of COVID-19. The banking regulatory agencies, through an Interagency Statement dated April 7, 2020, encouraged financial institutions to work with borrowers who request loan modifications or deferrals as a result of COVID-19. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 were considered current for COVID-19 modifications. A financial institution may temporarily suspend any determination of a loan modified as a result of COVID-19 as being a troubled debt restructuring (“TDR”), including the requirement to determine impairment for accounting purposes. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

Loan payment deferral requests were considered on a case-by-case basis and were initially approved for a three month period for principal and interest payments or for interest only payments depending on the borrower’s circumstances. An additional three month period is available for businesses and consumers that remain unable to operate due to COVID-19 after the initial three month deferral period. As of September 30, 2020, we had modified 283 loans aggregating $150.7 million, primarily consisting of the deferral of principal and/or interest payments for a period of 90 days. Details with respect to actual loan modifications are as follows:

Type of Loan September 30, 2020	Number of Loans	Balance		Weighted Average Interest Rate
		(In  thousands)
One- to four-family residential real estate (1)	94	$	24,573	4.05%
Commercial real estate	145		115,358	4.76%
Construction	4		2,630	3.77%
Home equity lines of credit	8		1,238	4.24%
Commercial business	32		6,892	5.88%
Total	283	$	150,691	4.67%
(1) Includes home equity loans.

Through November 30, 2020, 270 loans totaling $141.4 million had resumed making their contractually scheduled payments, 11 loans totaling $7.8 million remained in deferral status, and 2 loans totaling $1.5 million were delinquent. Of the two delinquent loans, one loan totaling $1.4 million was delinquent 90 days at September 30, 2020 and one loan totaling $113,000 was delinquent 30 days at September 30, 2020.

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, Magyar Bank was automatically authorized to originate PPP loans. An eligible business could apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%, (b) a five year loan term to maturity for loans made on or after June 5, 2020 (loans made prior to June 5, 2020 have a two-year term, however borrowers and lenders may mutually agree to extend the maturity for such loans to five years); and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP.

The Bank funded 350 PPP loans totaling $56.0 million through September 30, 2020 for which it received $2.0 million in origination fees from the SBA. The Bank receives a processing fee from the SBA based on a percentage of the PPP loan as follows: 5% for loans under $350,000, 3% for loans of $350,000 up to $1,999,900, and 1% for loans of $2,000,000 or more. The processing fees are being amortized over the expected life of the loans.

On April 9, 2020 the Board of Governors of the Federal Reserve announced the Paycheck Protection Program Lending Facility (“PPPLF”), authorized under section 13(3) of the Federal Reserve Act, to facilitate lending by eligible financial institutions to small businesses under the Paycheck Protection Program of the CARES Act. Under the PPPLF, the Federal Reserve Bank of New York provides advances with a fixed interest rate of 0.35% to Magyar Bank on a non-recourse basis, taking PPP loans as collateral.

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Under section 1102 of the CARES Act, a PPP Loan is assigned a risk weight of zero percent under the risk-based capital rules of the federal banking agencies. On April 9, 2020, the Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued an interim final rule to allow banking organizations to neutralize the effect of PPP loans financed under the PPPLF on Tier 1 leverage capital ratios. At September 30, 2020, the Bank had borrowed $36.9 million in PPPLF advances from the Federal Reserve, pledging an equal amount of PPP loans as collateral.

The health of the banking industry is highly correlated with that of the economy. The closure of non-essential businesses in our local and national economies increases the likelihood of recession, which typically results in an increased level of credit losses. Accordingly, our provisions for loan loss have increased and will be closely monitored throughout the pandemic. In addition to utilizing quantitative loss factors, the Company considers qualitative factors, such as changes in underwriting policies, current economic conditions, delinquency statistics, the adequacy of the underlying collateral, and the financial strength of the borrower. The impact of the COVID-19 pandemic on the performance of the Company’s loan portfolio in future quarters is unknown, however all of these factors are likely to be affected by the COVID-19 pandemic.

Comparison of Financial Condition at September 30, 2020 and September 30, 2019

Total Assets. Total assets increased $123.7 million, or 19.6%, during the year ended September 30, 2020. The increase was attributable to a $84.9 million, or 16.4%, increase in loans receivable, net of allowance of loss, a $40.3 million, or 187.5%, increase in cash and cash equivalents, and a $4.1 million increase in other assets from the adoption of ASU 2016-02 (Leases). Partially offsetting these increases were decreases in other real estate owned (“OREO”), which declined $4.9 million during the year, and in investment securities, which declined $1.2 million during the year.

Loans Receivable. Total loan receivable increased 84.9 million, or 16.4%, to $603.1 million at September 30, 2020 from $518.2 million at September 30, 2019. The total loan receivable at September 30, 2020 were comprised of $248.1 million (40.6%) in commercial real estate loans, $210.4 million (34.4%) in 1-4 family residential mortgage loans, $101.0 million (16.5%) in commercial business loans (including $56.0 in PPP loans), $28.2 million (4.6%) in construction loans, and $23.5 million (3.9%) in home equity lines of credit and other loans. Total loans receivable at September 30, 2019 were comprised of $232.5 million (44.5%) in commercial real estate loans, $190.4 million (36.4%) in 1-4 family residential mortgage loans, $48.8 million (9.3%) in commercial business loans, $28.5 million (5.4%) in construction loans, and $22.8 million (4.4%) in home equity lines of credit and other loans.

Total non-performing increased $2.8 million to $9.7 million during the year ended September 30, 2020 from $6.9 million at September 30, 2019. At September 30, 2020, non-performing loans consisted of eight commercial real estate loans totaling $2.2 million, three construction loans totaling $5.1 million, three commercial business loans totaling $1.5 million, and three loans secured by 1-4 family residential mortgage totaling $905,000. The ratio of non-performing loans to total loans was 1.6% at September 30, 2020 compared to 1.3% at September 30, 2019.

Once a loan is deemed non-performing, the value of the collateral securing the loan must be assessed, which is typically done by obtaining an updated third-party appraisal. To the extent that the current appraised value of collateral is insufficient to cover a collateral-dependent loan, the Company reduces the balance of the loan via a charge to the allowance for loan loss.

Non-performing loans secured by one-to four-family residential properties, including home equity lines of credit and other consumer loans, increased $791,000 to $905,000 at September 30, 2020 from $114,000 at September 30, 2019. Magyar Bank had begun foreclosure proceedings on the properties securing these loans at September 30, 2020. During the year ended September 30, 2020, there were no charge-offs against the allowance for loan loss for residential real estate loans while $9,000 was recovered from prior year charge-offs.

Non-performing commercial real estate loans decreased $433,000 to $2.2 million at September 30, 2020 from $2.7 million at September 30, 2019. Magyar Bank had begun foreclosure proceedings on the properties securing these loans at September 30, 2020. During the year ended September 30, 2020, there were no charge-offs against the allowance for loan loss while $5,000 was recovered from prior year charge-offs.

Non-performing commercial business loans increased $239,000 to $1.5 million at September 30, 2020 from $1.2 million at September 30, 2019. Magyar Bank had begun foreclosure proceedings on the collateral securing these loans at September 30, 2020. During the year ended September 30, 2020, Magyar Bank charged off $204,000 through a reduction of its allowance for loan loss for one impaired commercial business loan while $100,000 was recovered from a prior year charge-off.

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Non-performing construction loans increased $2.2 million to $5.1 million at September 30, 2020 from $2.9 million at September 30, 2019. Magyar Bank had begun foreclosure proceedings on the properties securing these loans at September 30, 2020. During the year ended September 30, 2020, Magyar Bank charged off $65,000 through a reduction of its allowance for loan loss for one impaired construction loan and there were no recoveries.

The ratio of non-performing loans and troubled debt restructurings to total loans receivable increased to 1.63% at September 30, 2020 from 1.39% at September 30, 2019. The allowance for loan losses increased $1.5 million to $6.4 million, or 65.8% of non-performing loans, at September 30, 2020 compared with $4.9 million, or 70.9% of non-performing loans, at September 30, 2019. Provisions for loan loss during the year ended September 30, 2020 were $1.7 million while net charge-off were $154,000, compared with a provision of $668,000 and net recoveries of $20,000 for the prior year period. The allowance for loan losses was 1.05% and 0.93% of gross loans outstanding at September 30, 2020 and 2019, respectively.

Investment Securities. Investment securities decreased $1.2 million, or 2.6%, to $45.0 million at September 30, 2020 from $46.2 million at September 30, 2019. Investment securities at September 30, 2020 consisted of $32.2 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $9.5 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes and $259,000 in “private-label” mortgage-backed securities. There were no other-than-temporary-impairment charges for the Company’s investment securities for the year ended September 30, 2020.

Securities available-for-sale decreased $2.1 million, or 12.8%, to $14.6 million at September 30, 2020 from $16.7 million at September 30, 2019. The decrease was attributable to $6.1 million in sales and $5.7 million in principal and premium amortization, partially offset by $9.5 million in purchases during the twelve months ended September 30, 2020.

Securities held-to-maturity increased $962,000, or 3.3%, to $30.4 million at September 30, 2020 from $29.5 million at September 30, 2019. The increase was the result of $10.2 million in security purchases, partially offset by $9.2 million in principal and premium amortization during the twelve months ended September 30, 2020.

Bank-Owned Life Insurance. The cash surrender value of life insurance held for directors and executive officers of Magyar Bank increased $324,000, or 2.4%, to $14.0 million at September 30, 2020 from $13.6 million at September 30, 2019. During the twelve months ended September 30, 2020, the Company did not purchase any new bank-owned life insurance policies.

Other Real Estate Owned. OREO decreased $4.9 million, or 65.5%, to $2.6 million at September 30, 2020 from $7.5 million at September 30, 2019.

The Company was able to dispose of seven properties with an aggregate carrying value of $4.6 million for a net gain of $42,000. The Company recorded $371,000 in valuation allowances against its OREO during the year ended September 30, 2020 based on updated appraisals or executed contracts of sale. There were no new properties recorded as OREO during the year ended September 30, 2020.

OREO at September 30, 2020 consisted of one residential property totaling $215,000, one compilation of real estate lots/land totaling $490,000, and three commercial real estate buildings totaling $1.9 million. The Bank is determining the proper course of action for its OREO, which may include holding the properties until the real estate market improves, marketing the properties for individual sale, or selling properties to an investor and/or developer.

Deposits. Deposits, which include noninterest-bearing demand deposits, interest-bearing demand deposits, money market deposits, savings deposits and time deposits, are the primary source of the Company’s funds.  The Company offers a variety of products designed to attract and retain customers, with primary focus on building and expanding relationships.  The Company continues to focus on establishing relationships with business borrowers, seeking deposits as well as lending relationships.

Total deposits increased $88.3 million, or 16.6%, to $618.3 million at September 30, 2020 from $530.0 million at September 30, 2019. The increase in deposits during the twelve month ended September 30, 2020 occurred in non-interest checking account balances, which increased $57.1 million, or 53.7%, to $163.6 million, in interest-bearing checking account balances, which increased $17.3 million, or 35.9% to $65.4 million, in certificates of deposit (including individual retirement accounts), which increased $9.6 million, or 8.2%, to $126.4 million, and in savings account balances, which increased $4.3 million, or 6.1%, to $74.9 million. Money market account balances decreased $92,000, or 0.05%, to $188.0 million. Deposits accounted for 82.0% of assets and 102.5% of net loans receivable at September 30, 2020 compared with 84.1% of assets and 102.3% of net loans receivable at September 30, 2019, respectively.

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The Bank experienced extraordinary increases in its deposits since the COVID-19 pandemic began in March 2020. During the six months ended September 30, 2020, deposits increased $57.4 million, of which $31.4 million was in non-interest checking accounts and $22.9 million was in interest-bearing checking accounts. Commercial and consumer deposit inflows were extraordinarily higher during this period due to PPP loan disbursements, government stimulus programs, lower spending and customers’ preferences for liquidity during the ongoing COVID-19 pandemic.

At September 30, 2020, the Company held $9.4 million in brokered certificates of deposit, compared with $6.9 million at September 30, 2019. Short-term brokered deposits were used to fund PPP loans before the PPPLF was announced.

The Company’s deposit strategy in 2020 focused on growing its non-interest checking account balances and managing the cost of its money market accounts to offset declines in market interest rates.

Borrowed Funds. Borrowings increased $31.2 million, or 86.3%, to $67.4 million at September 30, 2020 from $36.2 million at September 30, 2019. The Bank borrowed $36.9 million in PPPLF advances from the Federal Reserve Bank during the year ended September 30, 2020 to offset the liquidity and capital impacts of the PPP loans. Federal Home Loan Bank of New York advances decreased $5.7 million to $30.5 million at September 30, 2020 from $36.2 million at September 30, 2019 as deposit inflows were used to repay maturing long-term advances.

Stockholders’ Equity. Stockholders’ equity increased $2.2 million, or 4.0%, to $56.9 million at September 30, 2020 from $54.7 million at September 30, 2019. The increase in stockholders’ equity was attributable to the Company’s results of operations for the year ended September 30, 2020.

The Company repurchased 10,000 shares of its common stock at an average price of $9.03 during the twelve months ended September 30, 2020. The Company has repurchased 91,000 shares at an average price of $8.41 pursuant to the second stock repurchase plan, which reduced outstanding shares to 5,810,746.

The Company’s book value per share increased to $9.78 at September 30, 2020 from $9.39 at September 30, 2019. The increase was attributable to the Company’s results from operations and stock repurchases for the year ended September 30, 2020.

Comparison of Operating Results for the Years Ended September 30, 2020 and 2019

Net Income. The Company’s net income decreased $806,000, or 26.9%, to $2.2 million during the year ended September 30, 2020 compared with $3.0 million for the year ended September 30, 2019 due to higher provisions for loan loss, lower non-interest income, and higher non-interest expenses, partially offset by higher net interest and dividend income.

For the year ended September 30, 2020, the net interest margin decreased by 10 basis points to 3.31% from 3.41% for the prior year period. The Company experienced contraction in its margin due to the lower market interest rate environment and the origination of $56.0 million in PPP loans earning 1.0% during the year ended September 30, 2020.

Net Interest and Dividend Income. The primary source of the Company’s operating income is net interest and dividend income, which is the difference between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities.  The Company’s net interest and dividend income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand, deposit flows and levels of nonperforming assets.

During the year ended September 30, 2020, net interest and dividend income increased $1.0 million, or 5.0%, to $21.4 million compared to $20.4 million for the year ended September 30, 2019. The average balance of interest-earning assets increased $47.3 million, or 7.9%, while the yield on such assets decreased 37 basis points to 4.16% for the year ended September 30, 2020 compared with the prior year period. Originations of PPP loans, higher balances of interest earning deposits, and lower market interest rates were responsible for the 37 basis point drop in yield on earning assets. The average balance of interest-bearing liabilities increased $20.7 million, or 4.4%, while the cost on such liabilities decreased 31 basis points to 1.13% for the year ended September 30, 2020 compared with the prior year period. Lower market interest rates were responsible for the 31 basis point drop in the cost of the Company’s liabilities.

Average Balance Sheet. The following table presents certain information regarding our financial condition and net interest income for the years ended September 30, 2020, 2019 and 2018. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized 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.

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	For the Year Ended September 30,
	2020						2019						2018
	Average Balance		Interest Income/ Expense		Yield/Cost (Annualized)		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	$	35,612	$	208		0.58%	$	24,525	$	510		2.08%	$	15,606	$	228		1.46%
Loans receivable, net		562,209		25,626		4.55%		516,076		25,154		4.87%		487,133		22,604		4.64%
Securities
Taxable		45,308		965		2.13%		55,133		1,290		2.34%		59,579		1,384		2.32%
FHLB of NY stock		2,018		128		6.33%		2,162		149		6.88%		2,218		134		6.02%
Total interest-earning assets		645,147		26,927		4.16%		597,896		27,103		4.53%		564,536		24,350		4.31%
Noninterest-earning assets		46,839						42,566						45,288
Total assets	$	691,986					$	640,462					$	609,824
Interest-bearing liabilities:
Savings accounts (1)	$	72,290	$	347		0.48%	$	74,497	$	493		0.66%	$	95,892	$	658		0.69%
NOW accounts (2)		241,508		2,105		0.87%		234,953		3,231		1.38%		190,618		1,518		0.80%
Time deposits (3)		127,576		2,318		1.81%		121,706		2,197		1.81%		123,010		1,720		1.40%
Total interest-bearing deposits		441,374		4,770		1.08%		431,156		5,921		1.37%		409,520		3,896		0.95%
Borrowings		45,647		743		1.62%		35,175		789		2.24%		36,710		753		2.05%
Total interest-bearing liabilities		487,021		5,513		1.13%		466,331		6,710		1.44%		446,230		4,649		1.04%
Noninterest-bearing liabilities		148,080						119,384						112,191
Total liabilities		635,101						585,715						558,421
Retained earnings		56,885						54,747						51,403
Total liabilities and retained earnings	$	691,986					$	640,462					$	609,824
Net interest and dividend income			$	21,414					$	20,393					$	19,701
Interest rate spread						3.03%						3.09%						3.27%
Net interest-earning assets	$	158,126					$	131,565					$	118,306
Net interest margin (4)						3.31%						3.41%						3.49%
Average interest-earning assets to
average interest-bearing liabilities		132.47%						128.21%						126.51%

⁽¹⁾  Includes passbook savings, money market passbook and club accounts.

⁽²⁾  Includes interest-bearing checking and money market accounts.

⁽³⁾  Includes certificates of deposits and individual retirement accounts.

⁽⁴⁾  Calculated as annualized net interest income divided by average total interest-earning assets.    

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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods 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.

	September 30,
	2020 vs. 2019									2019 vs. 2018
	Increase (decrease)									Increase (decrease)
	due to									due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Interest-earning deposits	$	167		$	(469	)	$	(302	)	$	162		$	120		$	282
Loans		2,176			(1,704	)		472			1,390			1,160			2,550
Securities
Taxable		(216	)		(109	)		(325	)		(106	)		12			(94	)
FHLB of NY stock		(10	)		(11	)		(21	)		(3	)		18			15
Total interest-earning assets		2,117			(2,293	)		(176	)		1,443			1,310			2,753
Interest-bearing liabilities:
Savings accounts (1)		(14	)		(132	)		(146	)		(138	)		(27	)		(165	)
NOW accounts (2)		89			(1,215	)		(1,126	)		416			1,297			1,713
Time deposits (3)		121			0			121			(19	)		496			477
Total interest-bearing deposits		196			(1,347	)		(1,151	)		259			1,766			2,025
Borrowings		202			(248	)		(46	)		(32	)		68			36
Total interest-bearing liabilities		398			(1,595	)		(1,197	)		227			1,834			2,061
Increase in net interest income	$	1,719		$	(698	)	$	1,021		$	1,216		$	(524	)	$	692

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

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

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

Interest and Dividend Income. Interest and dividend income decreased $176,000, or 0.6%, to $26.9 million for the year ended September 30, 2020 from $27.1 million for the year ended September 30, 2019. The average balance of interest-earnings assets between the two periods increased $47.3 million, or 7.9%, to $645.1 million from $597.9 million, while the yield on such assets decreased 37 basis points to 4.16% for the year ended September 30, 2020 from 4.53% for the year ended September 30, 2019.

Interest income on loans increased $472,000, or 1.9%, to $25.6 million for the year ended September 30, 2020 from $25.2 million for the year ended September 30, 2019, while the average balance of loans increased $46.1 million, or 8.9%, to $562.2 million from $516.1 million. The average yield on such loans was 4.55% at September 30, 2020 compared with 4.87% at September 30, 2019. The decrease in yield on loans reflected the lower market interest rate environment and the origination of $56.0 million in PPP loans earning 1.0% during the year ended September 30, 2020.

Interest earned on investment securities, including interest earned on deposits but excluding Federal Home Loan Bank of New York stock, decreased $627,000, or 34.8%, to $1.2 million for the year ended September 30, 2020 from $1.8 million for the same period prior year. The decrease was primarily due to an 81 basis point decrease in the average yield on investment securities and interest earned on deposits to 1.45% from 2.26%, partially offset by a $1.2 million, or 1.6%, increase in the average balance of investment securities and interest earning deposits to $80.9 million from $79.7 million from the prior year.

Interest Expense. Interest expense decreased $1.2 million, or 17.8%, to $5.5 million for the year ended September 30, 2020 from $6.7 million for the year ended September 30, 2019. The average balance of interest-bearing liabilities increased $20.7 million, or 4.4%, to $487.0 million from $466.3 million between the two periods while the cost of such

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liabilities decreased 31 basis points to 1.13% for the year ended September 30, 2020 from 1.44% for the same period prior year due to the lower market interest rate environment.

The average balance of interest-bearing deposits increased $10.2 million, or 2.4%, to $441.4 million for the year ended September 30, 2020 from $431.2 million for the prior year while the average cost of such deposits decreased 29 basis points to 1.08% from 1.37%. Interest expense on average deposits decreased $1.1 million, or 19.4%, to $4.8 million for the year ended September 30, 2020 from $5.9 million for the year ended September 30, 2019.

Interest expense on advances decreased $46,000, or 5.8%, to $743,000 for the year ended September 30, 2020 from $789,000 for the year ended September 30, 2019. The average cost of borrowings decreased 62 basis points to 1.62% for the year ended September 30, 2020 from 2.24% for the year ended September 30, 2019. The average balance of advances and securities sold under agreements to repurchase increased $10.5 million to $45.6 million for the year ended September 30, 2020 from $35.2 million the prior year.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

After an evaluation of these factors, management made a provision of $1.7 million for the year ended September 30, 2020 compared with a $668,000 provision for the prior year. There were net charge-offs of $154,000 for the year ended September 30, 2020 compared with $20,000 in net recoveries for the year ended September 30, 2019. The COVID-19 pandemic and subsequent recession resulted in elevated risk factors used in determining the appropriate level of the allowance for loan loss.

Total non-performing loans increased by $2.8 million to $9.7 million during the year ended September 30, 2020 from $6.9 million at September 30, 2019. The allowance for loan losses increased by $1.5 million during the twelve months ended September 30, 2020 to $6.4 million.

Other Income. Other income decreased $420,000, or 19.7%, to $1.7 million during the year ended September 30, 2020 compared with $2.1 million the prior year due to lower loan and deposit service charges, which decreased $473,000. In addition to the lower loan fees, the closure of the bank’s branch lobbies during the peak of the COVID-19 pandemic and the shift in consumer behavior to debit cards from physical checks resulted in a decline in retail fee income year-over-year.

Other Expenses. Other expenses increased $753,000, or 4.3%, to $18.4 million for the year ended September 30, 2020 compared to $17.6 million for the year ended September 30, 2019.

Legal fees associated with the foreclosure and collection of non-performing loans drove professional fees $457,000, or 41.5%, higher during the year ended September 30, 2020. In addition, OREO expenses increased $165,000, or 49.4%, to $499,000 from valuation allowances recorded during the year ended September 30, 2020 based on updated appraisals or executed contracts of sale.

Compensation and benefit expenses increased $150,000, or 1.5%, to $10.3 million due to new compliance positions and annual merit increases for employees.

Income Tax Expense. The Company recorded tax expense of $921,000 on income of $3.1 million for the year ended September 30, 2020 compared with tax expense of $1.3 million on income of $4.3 million for the year ended September 30, 2019. The lower income tax expense resulted from a $1.2 million decrease in the Company’s results from operations.

The Company’s effective tax rate for the year ended September 30, 2020 was 29.6% compared with 29.7% for the year ended September 30, 2019.

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, 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

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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 retaining in our loan portfolio fewer fixed rate residential loans, 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 Federal Home Loan Bank of New York (“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 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, 2020, 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.

Change in			Estimated Decrease							Estimated Increase
Interest rates	Estimated		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	$	22,708	$	(890	)		-3.77%	$	22,907	$	(306	)		-1.32%
Unchanged		23,598		—			—		23,213		—			—
-100		23,152		(446	)		-1.89%		22,340		(873	)		-3.76%
(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, 2020, our liquidity ratio was 15.5% 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, 2020, cash and cash equivalents totaled $61.7 million compared with $21.5 million at September 30, 2019. Securities classified as available-for-sale, which provide additional sources of liquidity from sales, totaled $14.6 million at September 30, 2020 compared with $16.7 at September 30,

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2019. At September 30, 2020, we also had the ability to borrow $141.8 million from the FHLBNY. On that date, we had an aggregate of $30.5 million in advances outstanding and $50.0 million in municipal letters of credit outstanding with the FHLBNY.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our consolidated Statements of Cash Flows included in our consolidated Financial Statements.

At September 30, 2020, we had $21.1 million in loan origination commitments outstanding. In addition to commitments to originate loans, we had $78.6 million in unused lines of credit to borrowers. Certificates of deposit due within one year of September 30, 2020 totaled $79.1 million, or 12.8% 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, 2021. 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 $145.9 million in loans (including $56.0 million in PPP loans) and we purchased $19.8 million of investment securities for the year ended September 30, 2020. Comparatively, we originated $74.7 million in loans and purchased $4.7 million of investment securities for the year ended September 30, 2019.

Financing activities consist primarily of activity in deposit accounts and FHLBNY advances. We experienced a net increase in total deposits of $88.3 million, or 16.6%, to $618.3 million for the year ended September 30, 2020 compared with a net decrease in total deposits of $62,000 for the year ended September 30, 2019. 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 $30.5 million and $36.2 million at September 30, 2020 and September 30, 2019, 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, 2020, the Bank held $9.4 million in brokered deposits and $11.9 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, 2020, Magyar Bank’s Tier 1 capital as a percentage of the Bank's average assets was 8.30% and the total qualifying capital as a percentage of risk-weighted assets was 13.18%.

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

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 P, “Commitments,” and Note Q “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.

47 

The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2020. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.

	Payments Due by Period
	Less Than		One to		Three to		More Than
September 30, 2020	One Year		Three Years		Five Years		Five Years		Total
(In thousands)
Federal Home Loan Bank advances	$	7,130	$	15,471	$	7,884	$	—	$	30,485
Federal Reserve Bank advances		—		36,924		—		—		36,924
Operating leases		705		1,191		980		1,208		4,084
Total	$	7,835	$	53,586	$	8,864	$	1,208	$	71,493

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

48 

ITEM 8. Financial Statements and Supplementary Data

Table of Contents

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm	50
Consolidated Balance Sheets as of September 30, 2020 and 2019	51
Consolidated Statements of Operations for the Years Ended September 30, 2020 and 2019	52
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2020 and 2019	53
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended September 30, 2020 and 2019	54
Consolidated Statements of Cash Flows for the Years Ended September 30, 2020 and 2019	55
Notes to Consolidated Financial Statements	56

49 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Magyar Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Magyar Bancorp, Inc. and Subsidiary (the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in stockholders' equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since 2018.

Blue Bell, Pennsylvania

December 18, 2020

50 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

	September 30,			September 30,
	2020			2019
Assets
Cash	$	1,494		$	825
Interest earning deposits with banks		60,232			20,644
Total cash and cash equivalents		61,726			21,469
Investment securities - available for sale, at fair value		14,561			16,703
Investment securities - held to maturity, at amortized cost (fair value of
$30,899 and $29,344 at September 30, 2020 and 2019, respectively)		30,443			29,481
Federal Home Loan Bank of New York stock, at cost		1,981			2,222
Loans receivable, net of allowance for loan losses of $6,400 and $4,888
at September 30, 2020 and 2019, respectively		603,110			518,217
Bank owned life insurance		13,971			13,647
Accrued interest receivable		4,030			2,133
Premises and equipment, net		14,746			16,172
Other real estate owned ("OREO")		2,594			7,528
Other assets		6,835			2,756
Total assets	$	753,997		$	630,328
Liabilities and Stockholders' Equity
Liabilities
Deposits	$	618,330		$	530,075
Escrowed funds		2,413			2,399
Borrowings		67,410			36,189
Accrued interest payable		191			191
Accounts payable and other liabilities		8,803			6,823
Total liabilities		697,147			575,677
Stockholders' equity
Preferred stock: $.01 Par Value, 1,000,000 shares authorized; none issued		—			—
Common stock: $.01 Par Value, 8,000,000 shares authorized;
5,923,742 issued; 5,810,746 and 5,820,746 shares outstanding
at September 30, 2020 and 2019, respectively, at cost		59			59
Additional paid-in capital		26,294			26,317
Treasury stock: 112,996 and 102,996 shares
at September 30, 2020 and 2019, respectively, at cost		(1,242	)		(1,152	)
Unearned Employee Stock Ownership Plan shares		(65	)		(214	)
Retained earnings		33,161			30,971
Accumulated other comprehensive loss		(1,357	)		(1,330	)
Total stockholders' equity		56,850			54,651
Total liabilities and stockholders' equity	$	753,997		$	630,328

The accompanying notes are an integral part of these consolidated financial statements.

51 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Data)

	For the Year
	Ended September 30,
	2020		2019
Interest and dividend income
Loans, including fees	$	25,626	$	25,154
Investment securities
Taxable		1,173		1,800
Federal Home Loan Bank of New York stock		128		149
Total interest and dividend income		26,927		27,103
Interest expense
Deposits		4,770		5,921
Borrowings		743		789
Total interest expense		5,513		6,710
Net interest and dividend income		21,414		20,393
Provision for loan losses		1,666		668
Net interest and dividend income after
provision for loan losses		19,748		19,725
Other income
Service charges		901		1,374
Income on bank owned life insurance		324		304
Other operating income		106		148
Gains on sales of loans		317		193
Gains on sales of investment securities		68		117
Total other income		1,716		2,136
Other expenses
Compensation and employee benefits		10,283		10,133
Occupancy expenses		2,995		2,983
Professional fees		1,558		1,101
Data processing expenses		589		648
OREO expenses		499		334
FDIC deposit insurance premiums		479		326
Loan servicing expenses		308		286
Insurance expense		197		205
Other expenses		1,445		1,584
Total other expenses		18,353		17,600
Income before income tax expense		3,111		4,261
Income tax expense		921		1,265
Net income	$	2,190	$	2,996
Net income per share-basic and diluted	$	0.38	$	0.51
Weighted average basic and diluted shares outstanding		5,817,480		5,820,746

The accompanying notes are an integral part of these consolidated financial statements.

52 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(In Thousands)

	For the Year
	Ended September 30,
	2020			2019
Net income	$	2,190		$	2,996
Other comprehensive income
Unrealized gain on securities available for sale		127			933
Less reclassification adjustments for:
Net gains realized on securities available for sale		(68	)		(117	)
Net unrealized gain on securities available for sale		59			816
Defined benefit pension plan		(150	)		(618	)
Other comprehensive income, before tax		(91	)		198
Deferred income tax effect		64			(54	)
Total other comprehensive income (loss)		(27	)		144
Total comprehensive income	$	2,163		$	3,140

The accompanying notes are an integral part of these consolidated financial statements. 

53 

 MAGYAR BANCORP, INC. AND SUBSIDIARY

 Consolidated Statements of Changes in Stockholders' Equity

 For the Year Ended September 30, 2020 and 2019

 (In Thousands, Except for Share Amounts)

																	Accumulated
	Common Stock					Additional						Unearned					Other
	Shares			Par		Paid-In			Treasury			ESOP			Retained		Comprehensive
	Outstanding			Value		Capital			Stock			Shares			Earnings		Loss			Total
Balance, September 30, 2018		5,820,746			59		26,310			(1,152	)		(356	)		27,975		(1,474	)	$	51,362
Net income		—			—		—			—			—			2,996		—			2,996
Other comprehensive income		—			—		—			—			—			—		144			144
ESOP shares allocated		—			—		7			—			142			—		—			149
Balance, September 30, 2019		5,820,746			59		26,317			(1,152	)		(214	)		30,971		(1,330	)	$	54,651
Net income		—			—		—			—			—			2,190		—			2,190
Other comprehensive income		—			—		—			—			—			—		(27	)		(27	)
Purchase of treasury Stock		(10,000	)		—		—			(90	)		—			—		—			(90	)
ESOP shares allocated		—			—		(23	)		—			149			—		—			126
Balance, September 30, 2020		5,810,746			59		26,294			(1,242	)		(65	)		33,161		(1,357	)	$	56,850

The accompanying notes are an integral part of these consolidated financial statements.

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In Thousands)

	For the Year Ended
	September 30,
	2020			2019
Operating activities
Net income	$	2,190		$	2,996
Adjustment to reconcile net income to net cash provided by operating activities
Depreciation expense		854			871
Premium amortization on investment securities, net		107			105
Provision for loan losses		1,666			668
Provision for loss on other real estate owned		371			212
Originations of SBA loans held for sale		(3,623	)		(2,683	)
Proceeds from the sales of SBA loans		3,941			2,876
Gains on sale of loans receivable		(318	)		(193	)
Gains on sales of investment securities		(68	)		(117	)
Gains on the sales of other real estate owned		(42	)		(57	)
Loss on the sale of premises and equipment		16			—
ESOP compensation expense		126			149
Deferred income tax benefit		(880	)		(292	)
(Increase) decrease in accrued interest receivable		(1,897	)		48
Increase in surrender value of bank owned life insurance		(324	)		(304	)
Decrease (increase) in other assets		700			(226	)
Decrease in accrued interest payable		—			(2	)
(Decrease) increase in accounts payable and other liabilities		(2,005	)		1,738
Net income to net cash provided by operating activities		814			5,789
Investing activities
Net increase in loans receivable		(72,887	)		(20,410	)
Purchases of loans receivable		(13,672	)		—
Proceeds from the sale of loans receivable		—			9,452
Purchases of investment securities held to maturity		(10,226	)		(1,645	)
Purchases of investment securities available for sale		(9,557	)		(3,088	)
Sales of investment securities available for sale		6,073			6,575
Principal repayments on investment securities held to maturity		9,206			5,750
Principal repayments on investment securities available for sale		5,704			3,166
Purchases of bank owned life insurance		—			(1,500	)
Purchases of premises and equipment		(147	)		(53	)
Sales of premises and equipment		703			—
Investment in other real estate owned		(1	)		(11	)
Proceeds from other real estate owned		4,606			1,417
Redemption (purchase) of Federal Home Loan Bank stock		241			(58	)
Net cash used in investing activities		(79,957	)		(405	)
Financing activities
Net increase (decrease) in deposits		88,255			(62	)
Net increase in escrowed funds		14			114
Proceeds from long-term advances		41,515			9,605
Repayments of long-term advances		(10,294	)		(8,940	)
Purchase of treasury stock		(90	)		—
Net cash provided by financing activities		119,400			717
Net increase in cash and cash equivalents		40,257			6,101
Cash and cash equivalents, beginning of year		21,469			15,368
Cash and cash equivalents, end of year	$	61,726		$	21,469
Supplemental disclosures of cash flow information
Cash paid for
Interest	$	—		$	6,711
Income taxes	$	5,513		$	1,059
Non-cash operating activities
Real estate acquired in full satisfaction of loans in foreclosure	$	—		$	503

The accompanying notes are an integral part of these consolidated financial statements.

55 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

NOTE A - ORGANIZATION

On January 23, 2006, Magyar Bank (the “Bank”) completed a reorganization involving a series of transactions by which Bank’s corporate structure was changed from a mutual savings bank to the mutual holding company form of ownership. Magyar Bank became a New Jersey-chartered stock savings bank subsidiary of Magyar Bancorp, Inc., a Delaware-chartered mid-tier stock holding company. Magyar Bancorp, Inc. (the “Company”) owns 100% of the outstanding shares of common stock of Magyar Bank. Magyar Bancorp, Inc. is a majority-owned subsidiary of Magyar Bancorp, MHC, a New Jersey-chartered mutual holding company.

Magyar Bancorp, MHC, owns 54.03%, or 3,200,450, of the issued shares of common stock of Magyar Bancorp, Inc. Of the remaining shares, 2,610,296, or 44.06%, are held by public stockholders and 112,996, or 1.91%, are held by Magyar Bancorp, Inc. in treasury stock. So long as Magyar Bancorp, MHC exists, it will be required to own a majority of the voting stock of Magyar Bancorp, Inc. Magyar Bancorp, Inc. and Magyar Bancorp, MHC are subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System and the New Jersey Department of Banking and Insurance.

The Bank is subject to regulations issued by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation (the “FDIC”). The Bank’s administrative office is located in New Brunswick, New Jersey. The Bank has seven branch offices which are located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey, and a loan product office located in Keyport, New Jersey. The Bank’s savings deposits are insured by the FDIC through the Deposit Insurance Fund (“DIF”); also, the Bank is a member of the Federal Home Loan Bank of New York.

Magyar Investment Company, a New Jersey investment corporation subsidiary of the Bank, was formed on August 15, 2006 for the purpose of buying, selling and holding investment securities.

Hungaria Urban Renewal, LLC is a Delaware limited-liability corporation established in 2002 as a qualified intermediary operating for the purpose of acquiring and developing the Bank’s new main office. The Bank owns a 100% interest in Hungaria Urban Renewal, LLC, which has no other business other than owning the Bank’s main office site.

Magyar Service Corporation, a New Jersey corporation, is a wholly owned, non-bank subsidiary of the Bank. Magyar Service Corporation, which also operates under the name Magyar Financial Services, receives commissions from annuity and life insurance sales referred to a licensed, non-bank financial planner.

The Bank competes with other banking and financial institutions in its primary market areas. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time certificates of deposit and all types of loans. Such institutions, as well as consumer financial and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders.

The Bank is subject to regulations of certain state and federal agencies and, accordingly, the Bank is periodically examined by such regulatory authorities. As a consequence of the regulation of commercial banking activities, the Bank’s business is particularly susceptible to future state and federal legislation and regulations.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Financial Statement Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and its wholly-owned subsidiaries Magyar Investment Company, Magyar Service Corporation, and Hungaria Urban Renewal, LLC. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

56 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The Company has evaluated subsequent events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2020, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were available to be issued.

In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses and the deferred tax asset. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses.

The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

2. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, time deposits with original maturities less than three months and overnight deposits.

3. Investment Securities

The Company classifies its investment securities into one of three portfolios: held to maturity, available for sale or trading. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt securities not classified as either trading securities or as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive income (“AOCI”) component of stockholders’ equity. Equity securities, with certain exceptions, are measured at fair value with changes in fair value recognized in net income.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available for sale, held to maturity or trading. Temporary impairments on “available for sale” securities are recognized, on a tax-effected basis, through AOCI with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Conversely, the Company does not adjust the carrying value of “held to maturity” securities for temporary impairments, although information concerning the amount and duration of impairments on held to maturity securities is generally disclosed in periodic consolidated financial statements. The carrying value of securities held in a trading portfolio is adjusted to their fair value through earnings on a daily basis. However, the Company maintained no securities in trading portfolios at or during the periods presented in these consolidated financial statements.

57 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The Company accounts for other-than-temporary impairments based upon several considerations. First, other-than-temporary impairments on securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of the their fair value to a level equal to their amortized cost, are recognized in operations. If neither of these criteria apply, then the other-than-temporary impairment is separated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt securities are recognized, net of deferred taxes, in AOCI.

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to purchase and hold restricted stock of its district FHLB according to a predetermined formula. This stock is restricted in that it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at cost, less any applicable impairment charges.

Premiums and discounts on all securities are amortized or accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments on mortgage-backed securities. Gain or loss on sales of securities is recognized on the specific identification method.

4. Loans and Allowance for Loan Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, adjusted for net deferred loan fees and costs, and reduced by an allowance for loan losses. Interest on loans is accrued and credited to operations based upon the principal amounts outstanding. The allowance for loan losses is established through a provision for possible loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Income recognition of interest is discontinued when, in the opinion of management, the collectability of such interest becomes doubtful. A loan is generally classified as non-accrual when the scheduled payment(s) due on the loan is delinquent for more than three months. Loan origination fees and certain direct origination costs are deferred and amortized over the life of the related loans as an adjustment to the yield on loans receivable using the effective interest method.

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse.  Confirmation of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within the portfolio.  Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis.

The allowance for loan losses is maintained at an amount management deems adequate to cover estimated losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry

58 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

experience, historical loss experience, industry loan concentrations, the borrowers’ ability to repay and repayment performance, and estimated collateral values. In the opinion of management, the present allowance is adequate to absorb reasonable, foreseeable loan losses. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management’s determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Charge-offs to the allowance are made when the loan is transferred to other real estate owned or other determination of a confirmed loss. Recoveries on loans previously charged off are also recorded through the allowance.

A loan is considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or as a practical expedient, at the loan’s current observable market price, or the fair value of the collateral if the loan is collateral dependent. The amount by which the recorded investment of an impaired loan exceeds the measurement value is recognized by creating a valuation allowance through a charge to the provision for loan losses. Impairment criteria generally do not apply to those smaller-balance homogeneous loans that are collectively evaluated for impairment which, for the Company, includes one- to four-family first mortgage loans and consumer loans, other than those modified in a troubled debt restructuring.

The Company records cash receipts on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges unless specifically directed by the Bankruptcy Court to apply payments otherwise. The Company may continue to recognize interest income on impaired loans where there is no confirmed loss.

5. Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation, and include capitalized expenditures for new facilities, major betterments and renewals. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method based upon the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes. Leasehold improvements are depreciated using the straight-line method based upon the initial term of the lease.

The Company accounts for the impairment of long-lived assets in accordance with US GAAP, which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale. The Company had no impaired long-lived assets at September 30, 2020 and 2019.

6. Revenue recognition

The Company recognizes revenue in the consolidated statements of income as it is earned and when collectability is reasonably assured. The primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts, or other similar contracts. Non-interest income is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income includes earnings on bank-owned life insurance, deposit accounts, merchant services, ATM and debit card fees, mortgage banking activities, and other miscellaneous services and transactions.

The Company’s contracts with customers in the scope of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” are contracts for deposit accounts and contracts for non-deposit investment accounts through a third party service provider.  Both types of contracts result in non-interest income being recognized. The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of service charges on the consolidated statements of income. The revenue resulting from non-deposit investment accounts is included as a component of other operating income on the consolidated statements of income. 

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

Revenue from contracts with customers included in service charges was $901,000 and $1.4 million for the years ended September 30, 2020 and 2019, respectively.  Revenue from contracts with customers included in other operating income was $106,000 and $148,000 for the years ended September 30, 2020 and 2019, respectively.

For our contracts with customers, we satisfy our performance obligations each day as services are rendered.  For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third party service provider as services are rendered.

7. Other Real Estate Owned

Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its net cost or fair value less estimated selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.

The Company accounts for gains on sales of other real estate owned under ASU 2014-09, which uses a principles based methodology. As it pertains to the criteria for determining how a contract should be accounted for under the new guidance, judgment is required in evaluating if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized under the new guidance.

Operating expenses of holding real estate, net of related income, are charged against income as incurred. Losses on the disposition of real estate, including expenses incurred in connection with the disposition, are charged to operations.

8. Pension and Postretirement Plans

The Company sponsors qualified defined benefit pension plan and supplemental executive retirement plan (SERP). The qualified defined benefit pension plan is funded with trust assets invested in a diversified portfolio of debt and equity securities. Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. This involves extensive use of assumptions about inflation, investment returns, mortality, turnover, and discount rates. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plan could have an adverse impact on our cash flow. Changes in the key actuarial assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and other postretirement benefit plan. See Note M, “Pension Plan,” and Note N, “Non-Qualified Compensation Plan” for information on these plans and the assumptions used.

9. Income Taxes

The Company and its subsidiaries file consolidated federal and individual state income tax returns. Income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return.

The Company records income taxes on the basis of reported income using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The Company follows the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 740, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

At September 30, 2020 and 2019, no significant income tax uncertainties have been included in the Company’s Consolidated Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties were recorded during the year ended September 30, 2020 and 2019. The tax years subject to examination by the taxing authorities are the years ended September 30, 2015 and forward.

10. Advertising Costs

The Company expenses advertising costs as incurred.

11. Earnings Per Share

Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. The weighted average common shares outstanding include shares held by the Magyar Bancorp, MHC and shares allocated to the Employee Stock Ownership Plan.

Diluted income per share is calculated by adjusting the weighted average common shares outstanding to reflect the potential dilution that could occur using the treasury stock method if securities or other contracts to issue common stock, such as stock options and unvested restricted stock, were exercised and converted into common stock. The resulting shares issued would share in the earnings of the Company. Shares issued and shares reacquired during the period are weighted for the portion of the period that they were outstanding. In periods of loss, dilution is not calculated and diluted loss per share is equal to basic loss per share. As there were no stock options of grants outstanding at September 30, 2020 or September 30, 2019, there is no calculated dilution to the Company’s earnings per share.

12. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) includes net income as well as certain other items which result in a change to equity during the period. The other items allocated to comprehensive income (loss), as well as the related income tax effects, for the years ended September 30, 2020 and 2019 were as follows:

	September 30,
	2020									2019
				Tax			Net of						Tax			Net of
	Before Tax			(Benefit)			Tax			Before Tax			(Benefit)			Tax
	Amount			Expense			Amount			Amount			Expense			Amount
	(In thousands)
Unrealized holding (losses) gains arising
during period on:
Available-for-sale investments	$	127		$	(38	)	$	89		$	933		$	(261	)	$	672
Less reclassification adjustment for:
Net gains realized on securities
available-for-sale(a) (b)		(68	)		19			(49	)		(117	)		33			(84	)
Defined benefit pension plan		(150	)		83			(67	)		(618	)		174			(444	)
Other comprehensive income (loss), net	$	(91	)	$	64		$	(27	)	$	198		$	(54	)	$	144

(a) Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of Operations

(b) Tax effect included in income tax expense in the accompanying Consolidated Statements of Operations  

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The components of accumulated other comprehensive loss at September 30, 2020 and 2019 were as follows:

	September 30,
	2020			2019
	(In thousands)
Available-for-sale investments, net of tax	$	83		$	43
Defined benefit pension plan, net of tax		(1,440	)		(1,373	)
Total accumulated other comprehensive loss	$	(1,357	)	$	(1,330	)

13. Bank-Owned Life Insurance

The Company has purchased Bank-Owned Life Insurance policies (“BOLI”). BOLI involves the purchasing of life insurance by the Company on directors and executive officers. The proceeds are used to help defray the costs of non-qualified compensation plans. The Company is the owner and beneficiary of the policies. BOLI is recorded on the Consolidated Balance Sheets at its cash surrender value and changes in the cash surrender value are recorded in other income in the Consolidated Statement of Operations.

14. Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under commercial lines of credit. Such financial instruments are recorded when they are funded. The Company does not engage in the use of derivative financial instruments. See Note Q, “Financial Instruments With Off-Balance Risk.”

15. Segment Reporting

The Company acts as an independent, community, financial services provider, and offers traditional banking and related financial services to individual, business and government customers. The Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and home equity loans; and the provision of other financial services.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Company. As such, discrete financial information is not available and segment reporting would not be meaningful.

16. New Accounting Pronouncements

In connection with the preparation of quarterly and annual reports in accordance with the Securities and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, SEC Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on financial statements when they are adopted in the future.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those

62 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

fiscal years. The Company currently expects to continue to qualify as a smaller reporting company, based upon the current SEC definition, and as a result, will likely be able to defer implementation of the new standard for a period of time. The Company did not early adopt as of January 1, 2020, but will continue to review factors that might indicate that the full deferral time period should not be used. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses, but the Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on its consolidated financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU removes the disclosures of 1) the amounts in accumulated other comprehensive income that the entity expects to recognize in net periodic benefit cost during the next fiscal year, 2) the amount and timing of plan assets expected to be returned to the employer and 3) certain related party disclosures. The ASU clarifies the disclosure requirements for the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets. The ASU adds disclosure requirements for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and for an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

ASU 2018-14 is effective for public business entities in fiscal years ending after December 15, 2020 (Beginning October 1, 2021 for the Company). Early adoption is permitted. The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

NOTE C – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

The Company follows FASB Accounting Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation, which covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

Stock options generally vest over a five-year service period and expire ten years from issuance. The fair values of all option grants were estimated using the Black-Scholes option-pricing model. Management recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the vesting period of the awards. Once vested, these awards are irrevocable.

There were no grants, vested shares or forfeitures of non-vested restricted stock awards as of or during the years ended September 30, 2020 and 2019.

There were no stock option and stock award expenses included with compensation expense for the years ended September 30, 2020 and 2019.

The Company announced its second stock repurchase program of up to 5% of its publicly-held outstanding shares of common stock, or 129,924 shares, in November 2007. Through September 30, 2020, the Company had repurchased a total of 91,000 shares of its common stock at an average cost of $8.41 per share under this program. The Company repurchased 10,000 shares of its common stock at an average price of $9.03 during the twelve months ended September 30, 2020. No shares were repurchased during the twelve months ended September 30, 2019. Under the stock repurchase program, 38,924 shares of the 129,924 shares authorized remained available for repurchase as of September 30, 2020. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held 112,996 total treasury stock shares at September 30, 2020.

The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees who meet the eligibility requirements as defined in the plan in 2006. The ESOP trust purchased 217,863 shares of common stock in the

63 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

open market using proceeds of a loan from the Company. The total cost of shares purchased by the ESOP trust was $2.3 million, reflecting an average cost per share of $10.58. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears a variable interest rate that adjusts annually to Prime Rate (4.75% at January 1, 2020) with principal and interest payable annually in equal installments over thirty years. The loan is secured by shares of the Company’s stock.

As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company accounts for its ESOP in accordance with FASB ASC Topic 718, “Employer’s Accounting for Employee Stock Ownership Plans.” As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. The Company's contribution expense for the ESOP was $126,000 and $149,000 for years ended September 30, 2020 and 2019, respectively.

The following table presents the components of the ESOP shares as of September 30, 2019:

Unreleased shares at September 30, 2019	27,202
Shares released for allocation during the year ended September 30, 2020	(12,445	)
Unreleased shares at September 30, 2020	14,757
Total released shares	203,106
Total ESOP shares	217,863

The aggregate fair value of the unreleased shares at September 30, 2020 was approximately $123,000.

NOTE D - INVESTMENT SECURITIES

The amortized cost, gross unrealized gains or losses and fair value of the Company’s investment securities available-for-sale and held-to-maturity are as follows:

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	350	$	14	$	—		$	364
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,092		108		(6	)		9,194
Debt securities		5,000		3		—			5,003
Total securities available for sale	$	14,442	$	125	$	(6	)	$	14,561

64 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,453	$	11	$	(33	)	$	1,431
Mortgage-backed securities - commercial		775		—		—			775
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		20,456		697		(3	)		21,150
Debt securities		4,500		1		(16	)		4,485
Private label mortgage-backed securities - residential		259		—		(5	)		254
Corporate securities		3,000		—		(196	)		2,804
Total securities held to maturity	$	30,443	$	709	$	(253	)	$	30,899

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	480	$	15	$	—		$	495
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,663	$	80	$	(35	)	$	14,708
Debt securities		1,500		—		—			1,500
Total securities available-for-sale	$	16,643	$	95	$	(35	)	$	16,703

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	445	$	—	$	(54	)	$	391
Mortgage-backed securities - commercial		842		—		(6	)		836
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		22,363		276		(47	)		22,592
Debt securities		2,468		10		—			2,478
Private label mortgage-backed securities - residential		363		7		—			370
Corporate securities		3,000		—		(323	)		2,677
Total securities held-to-maturity	$	29,481	$	293	$	(430	)	$	29,344

The contractual maturities of mortgage-backed securities generally exceed 10 years; however, the effective lives are expected to be shorter due to anticipated prepayments. The maturities of the debt securities and certain information regarding to the mortgage-backed securities available-for-sale at September 30, 2020 are summarized in the following table:

65 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	September 30, 2020
	(In thousands)
	Amortized		Fair
	Cost		Value
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		5,000		5,003
Due after 5 but within 10 years		—		—
Due after 10 years		—		—
Total debt securities		5,000		5,003
Mortgage-backed securities:
Residential(1)		9,442		9,558
Commercial		—		—
Total	$	14,442	$	14,561

⁽¹⁾ Available-for-sale mortgage-backed securities – residential include an amortized cost of $350,000 and a fair value of $364,000 for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $9.1 million and a fair value of $9.2 million. There were no residential mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises.

The maturities of the debt securities and certain information regarding to the mortgage-backed securities held to maturity at September 30, 2020 are summarized in the following table:

	September 30, 2020
	Amortized		Fair
	Cost		Value
	(In thousands)
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		4,500		4,486
Due after 5 but within 10 years		3,000		2,803
Due after 10 years		—		—
Total debt securities		7,500		7,289
Mortgage backed securities:
Residential(1)		22,168		22,835
Commercial(2)		775		775
Total	$	30,443	$	30,899

⁽¹⁾ Held-to-maturity mortgage-backed securities – residential include an amortized cost of $1.5 million and a fair value of $1.4 million for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $20.5 million and a fair value of $21.2 million. Also included are mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises with an amortized cost of $259,000 and a fair value of $254,000.

⁽²⁾ Held-to-maturity mortgage-backed securities – commercial include an amortized cost of $775,000 and a fair value of $775,000 for obligations of U.S. government agencies issued by the Small Business Administration.

There were $6.1 million in sales of securities from the available-for-sale portfolio during the year ended September 30, 2020 and $6.6 million in sales during the year ended September 30, 2019. There were no sales of securities from the held-to-maturity portfolio during the year ended September 30, 2020 and 2019. The net gain on sales of investment securities totaled $68,000 and $117,000 for the year ended September 30, 2020 and 2019, respectively.

66 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

As of September 30, 2020 and 2019, securities having an estimated fair value of approximately $22.6 million and $18.9 million, respectively, were pledged to secure public deposits.

Details of securities with unrealized losses at September 30, 2020 and 2019 are as follows:

			September 30, 2020
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		2	$	—	$	—		$	284	$	(33	)	$	284	$	(33	)
Mortgage-backed securities - commercial		1		—		—			775		—			775		—
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential		2		2,854		(3	)		533		(6	)		3,387		(9	)
Debt securities		2		2,484		(16	)		—		—			2,484		(16	)
Private label mortgage-backed securities residential		1		254		(5	)		—		—			254		(5	)
Corporate securities		1		—		—			2,804		(196	)		2,804		(196	)
Total		9	$	5,592	$	(24	)	$	4,396	$	(235	)	$	9,988	$	(259	)

			September 30, 2019
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities- residential		2	$	—	$	—		$	392	$	(54	)	$	392	$	(54	)
Mortgage-backed securities - commercial		1		—		—			836		(6	)		836		(6	)
Obligations of U.S. government-sponsored enterprises
Mortgage backed securities- residential		13		1,219		(4	)		14,429		(78	)		15,648		(82	)
Corporate securities		1		—		—			2,678		(323	)		2,678		(323	)
Total		17	$	1,219	$	(4	)	$	18,335	$	(461	)	$	19,554	$	(465	)

The investment securities listed above currently have fair values less than amortized cost and therefore contain unrealized losses. The Company evaluated these securities and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related to any company or industry specific event.

The Company anticipates full recovery of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery. Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities with impairment that is other than temporary as of September 30, 2020 and 2019.

NOTE E - LOANS RECEIVABLE, NET

Loans receivable are comprised of the following:

67 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	September 30,
	2020			2019
	(In thousands)
One-to four-family residential	$	210,360		$	190,415
Commercial real estate		248,134			232,544
Construction		28,242			28,451
Home equity lines of credit		19,373			17,832
Commercial business		100,993			48,769
Other		4,157			4,990
Total loans receivable		611,259			523,001
Net deferred loan costs		(1,749	)		104
Allowance for loan losses		(6,400	)		(4,888	)
Total loans receivable, net	$	603,110		$	518,217

Certain directors and executive officers of the Company have loans with the Bank. Such loans were made in the ordinary course of business at the Bank’s normal credit terms, including interest rate and collateralization, and do not represent more than a normal risk of collection. Total loans receivable from directors and executive officers, and affiliates thereof, were approximately $2.5 million and $2.9 million at September 30, 2020 and 2019, respectively. There were $400,000 and $502,000 in new loans or advances on existing lines of credit during the year ended September 30, 2020 and 2019, respectively. Total principal repayments were approximately $775,000 and $233,000 for the year ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and 2019, the Company was servicing loans for others amounting to approximately $42.7 million and $42.3 million, respectively. The Company held mortgage servicing rights in the amount of $12,000 and $26,000 at September 30, 2020 and 2019, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and foreclosure processing. Loan servicing income is recorded on the cash basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. In connection with loans serviced for others, the Company held borrowers’ escrow balances of approximately $61,000 and $78,000 at September 30, 2020 and 2019, respectively.

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens.  The commercial loan segment is further disaggregated into three classes: loans secured by multifamily structures, owner-occupied commercial structures, and non-owner occupied nonresidential properties.  The construction loan segment consists primarily of developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built.  Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan.  The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily of revolving lines of credit. The consumer loan segment consists primarily of stock-secured installment loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is 90 days or more past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  

68 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s current observable market price; or (c) the fair value of the collateral securing the loan, less anticipated selling and disposition costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods presented:

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2020	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	2,601	$	2,601	$	2,601
Commercial real estate		599		46		3,806		4,405		4,405
Construction		2,306		175		2,835		5,141		5,206
Commercial business		—		—		2,014		2,014		2,218
Total impaired loans	$	2,905	$	221	$	11,256	$	14,161	$	14,430

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2019	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	1,405	$	1,405	$	1,405
Commercial real estate		—		—		4,593		4,593		4,593
Construction		—		—		2,900		2,900		2,900
Commercial business		—		—		1,456		1,456		1,456
Total impaired loans	$	—	$	—	$	10,354	$	10,354	$	10,354

The average recorded investment in impaired loans was $11.7 million and $9.2 million for the years ended September 30, 2020 and 2019, respectively. The Company’s impaired loans at September 30, 2020 include $11.4 million in delinquent loans and $2.9 million in performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. During the years ended September 30, 2020 and 2019, interest income of $142,000 and $165,000, respectively, was recognized for TDR loans while no interest income was recognized for delinquent non-accrual loans.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system for the periods presented:

69 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2020
One-to four-family residential	$	208,658	$	—	$	1,702	$	—	$	210,360
Commercial real estate		242,003		2,623		3,508		—		248,134
Construction		23,101		—		5,141		—		28,242
Home equity lines of credit		19,373		—		—		—		19,373
Commercial business		98,967		178		1,848		—		100,993
Other		4,157		—		—		—		4,157
Total	$	596,259	$	2,801	$	12,199	$	—	$	611,259

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2019
One-to four-family residential	$	189,938	$	—	$	477	$	—	$	190,415
Commercial real estate		228,156		1,409		2,979		—		232,544
Construction		25,551		—		2,900		—		28,451
Home equity lines of credit		17,832		—		—		—		17,832
Commercial business		47,541		—		1,228		—		48,769
Other		4,990		—		—		—		4,990
Total	$	514,008	$	1,409	$	7,584	$	—	$	523,001

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans for the periods presented:

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2020
One-to four-family residential	$	209,455	$	—	$	—	$	905	$	905	$	905	$	210,360
Commercial real estate		245,029		—		886		2,219		3,105		2,219		248,134
Construction		23,101		—		—		5,141		5,141		5,141		28,242
Home equity lines of credit		19,373		—		—		—		—		—		19,373
Commercial business		99,397		—		129		1,467		1,596		1,467		100,993
Other		4,157		—		—		—		—		—		4,157
Total	$	600,512	$	—	$	1,015	$	9,732	$	10,747	$	9,732	$	611,259

70 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2019
One-to four-family residential	$	190,301	$	—	$	—	$	114	$	114	$	114	$	190,415
Commercial real estate		229,331		503		58		2,652		3,213		2,652		232,544
Construction		25,551		—		—		2,900		2,900		2,900		28,451
Home equity lines of credit		17,832		—		—		—		—		—		17,832
Commercial business		47,541		—		—		1,228		1,228		1,228		48,769
Other		4,990		—		—		—		—		—		4,990
Total	$	515,546	$	503	$	58	$	6,894	$	7,455	$	6,894	$	523,001

The amount of interest income not recognized on non-accrual loans was approximately $508,000 and $530,000 for the years ended September 30, 2020 and 2019, respectively. At September 30, 2020 and September 30, 2019, there were no commitments to lend additional funds to borrowers whose loans are classified as non-accrual.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of NPLs.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors.

The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over 5 historical years is used.

Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint. Management increased several of these factors during the year ended September 30, 2020 due to the higher risk of credit loss resulting from the COVID-19 pandemic and its ongoing impact on borrowers and economic conditions.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.

71 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The following tables summarize the activity in the allowance for loan losses by loan category for the years ended September 30, 2020 and 2019:

	One-to Four-							Home Equity
	Family		Commercial					Lines of		Commercial
	Residential		Real Estate		Construction			Credit		Business			Other			Unallocated			Total
	(In  thousands)
Balance-September 30, 2019	$	731	$	2,066	$	511		$	138	$	1,184		$	8		$	250		$	4,888
Charge-offs		—		—		(65	)		—		(204	)		—			—			(269	)
Recoveries		11		5		—			—		99			—			—			115
Provision (credit)		293		1,161		226			41		(45	)		(7	)		(3	)		1,666
Balance-September 30, 2020	$	1,035	$	3,232	$	672		$	179	$	1,034		$	1		$	247		$	6,400

	One-to Four-								Home Equity
	Family			Commercial					Lines of		Commercial
	Residential			Real Estate			Construction		Credit		Business			Other			Unallocated		Total
	(In  thousands)
Balance-September 30, 2018	$	687		$	1,540		$	493	$	109	$	1,151		$	25		$	195	$	4,200
Charge-offs		—			(1	)		—		—		(100	)		—			—		(101	)
Recoveries		120			—			—		1		—			—			—		121
Provision (credit)		(76	)		527			18		28		133			(17	)		55		668
Balance-September 30, 2019	$	731		$	2,066		$	511	$	138	$	1,184		$	8		$	250	$	4,888

The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and September 30, 2019:

	One-to-Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(In  thousands)
Allowance for Loan Losses:
Balance - September 30, 2020	$	1,035	$	3,232	$	672	$	179	$	1,034	$	1	$	247	$	6,400
Individually evaluated
for impairment		—		46		175		—		—		—		—		221
Collectively evaluated
for impairment		1,035		3,186		497		179		1,034		1		247		6,179
Loans receivable:
Balance - September 30, 2020	$	210,360	$	248,134	$	28,242	$	19,373	$	100,993	$	4,157	$	—	$	611,259
Individually evaluated
for impairment		2,601		4,405		5,141		—		2,014		—		—		14,161
Collectively evaluated
for impairment		207,759		243,729		23,101		19,373		98,979		4,157		—		597,098

72 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	One-to- Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(Dollars in  thousands)
Allowance for Loan Losses:
Balance - September 30, 2019	$	731	$	2,066	$	511	$	138	$	1,184	$	8	$	250	$	4,888
Individually evaluated
for impairment		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		731		2,066		511		138		1,184		8		250		4,888
Loans receivable:
Balance - September 30, 2019	$	190,415	$	232,544	$	28,451	$	17,832	$	48,769	$	4,990	$	—	$	523,001
Individually evaluated
for impairment		1,405		4,593		2,900		—		1,456		—		—		10,354
Collectively evaluated
for impairment		189,010		227,951		25,551		17,832		47,313		4,990		—		512,647

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

A TDR is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally included, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

A default on a troubled debt restructured loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred. There were no defaults of TDRs during the year ended September 30, 2020.

There was one new TDR loan during both the years ended September 30, 2020 and September 30, 2019. Both TDRs were performing in accordance with their restructured terms as September 30, 2020. The following tables summarize the TDRs during the years ended September 30, 2020 and 2019:

	Year Ended September 30, 2020
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
Commercial business		1	$	252	$	220
Total		1	$	252	$	220

	Year Ended September 30, 2019
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
One-to four-family residential		1	$	260	$	363
Total		1	$	260	$	363

73 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

Magyar Bank offered loan payment deferrals to borrowers affected by COVID-19. Loan payment deferral requests were considered on a case-by-case basis and were approved for up to a six month period for principal and interest payments or for interest only payments, depending on the borrower’s circumstances. As of September 30, 2020, we had modified 283 loans aggregating $150.7 million. Details with respect to actual loan modifications are as follows:

Type of Loan September 30, 2020	Number of Loans		Balance
			(In  thousands)
One- to four-family residential real estate (1)		94	$	24,573
Commercial real estate		145		115,358
Construction		4		2,630
Home equity lines of credit		8		1,238
Commercial business		32		6,892
Total		283	$	150,691
(1) Includes home equity loans.

Through November 30, 2020, 270 loans totaling $141.4 million had resumed making their contractually scheduled payments, 11 loans totaling $7.8 million remained in deferral status, and 2 loans totaling $1.5 million were delinquent. Of the two delinquent loans, one loan totaling $1.4 million was delinquent 90 days at September 30, 2020 and one loan totaling $113,000 was delinquent 30 days at September 30, 2020.

Total loans pledged as collateral against Federal Home Loan Bank of New York borrowings were $184.1 million and $176.9 million as of September 30, 2020 and 2019, respectively.

NOTE F - ACCRUED INTEREST RECEIVABLE

The following is a summary of accrued interest receivable:

	September 30,
	2020		2019
	(In thousands)
Loans	$	3,943	$	2,005
Investment securities		22		47
Mortgage-backed securities		65		81
Total accrued interest receivable	$	4,030	$	2,133

NOTE G - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

74 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	Estimated	September 30,
	Useful Lives	2020			2019
		(In thousands)
Land	Indefinite	$	3,811		$	3,811
Buildings and improvements	10-40 years		21,622			22,524
Furniture, fixtures and equipment	5-10  years		3,407			3,300
			28,840			29,635
Less accumulated depreciation			(14,094	)		(13,463	)
Premises and equipment, net		$	14,746		$	16,172

For the years ended September 30, 2020 and 2019, depreciation expense included in occupancy expense amounted to approximately $854,000 and $871,000, respectively.

Hungaria Urban Renewal, LLC was formed in 2002 and its sole purpose was to purchase the land and construct the office building for which the Company is the primary tenant. The Bank owns a 100% interest in Hungaria Urban Renewal, LLC, which has no other business other than owning the Bank’s main office site. At September 30, 2020, Hungaria Urban Renewal, LLC accounted for approximately $3.1 million and $8.6 million of land and buildings, net of depreciation, respectively. At September 30, 2019, Hungaria Urban Renewal, LLC accounted for approximately $3.1 million and $9.0 million of land and buildings, net of depreciation, respectively.

NOTE H - OTHER REAL ESTATE OWNED

The Company held $2.6 million of real estate owned properties at September 30, 2020 and $7.5 million at September 30, 2019. The Company incurred write-downs totaling $371,000 and $212,000 on these properties for the years ended September 30, 2020 and 2019; these amounts were carried as valuation allowances, unless the properties were sold, at September 30, 2020 and 2019, respectively. Further declines in real estate values may result in increased foreclosed real estate expense in the future. Routine holding costs are charged to expense as incurred and improvements to real estate owned that enhance the value of the real estate are capitalized.

NOTE I - DEPOSITS

A summary of deposits by type of account follows:

	September 30,
	2020		2019
	(In thousands)
Demand accounts	$	163,562	$	106,422
Savings accounts		74,923		70,598
NOW accounts		65,447		48,164
Money market accounts		188,023		188,115
Certificate of deposit		110,650		100,016
Retirement accounts		15,725		16,760
Total deposits	$	618,330	$	530,075

The current FDIC insurance limit on bank deposit accounts is $250,000. The aggregate amount of deposit accounts with a minimum denomination of $250,000 was approximately $365.6 million at September 30, 2020 compared with $298.8 million at September 30, 2019. The aggregate amount of certificate deposits, including individual retirement accounts with balance of $250,000 or more was $45.6 million at September 30, 2020 compared with $35.0 million at September 30, 2019.

75 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

At September 30, 2020, certificates of deposit (including retirement accounts and brokered certificate deposit accounts) have contractual maturities as follows (in thousands):

Year Ending September 30,
2021	$	79,120
2022		26,209
2023		8,738
2024		6,377
2025 and after		5,931
Total	$	126,375

NOTE J - BORROWINGS

1. Federal Home Loan Bank of New York Advances

Long term Federal Home Loan Bank of New York (“FHLBNY”) advances at September 30, 2020 and September 30, 2019 totaled approximately $30.5 million and $36.2 million, respectively. The weighted average interest rate on advances outstanding at September 30, 2020 and 2019 were 2.09% and 2.26%, respectively. The advances were collateralized by unencumbered qualified assets consisting of one-to-four family residential and commercial real estate mortgage loans. Advances are made pursuant to several different credit programs offered from time to time by the FHLBNY.

Long term FHLBNY advances as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	7,130
2022		10,731
2023		4,741
2024		4,384
2025		3,500
Thereafter		—
Total	$	30,486

Additionally, the Company has established an Overnight Line of Credit arrangement with the FHLBNY. The total amount available under the line of credit is based on the amount of eligible collateral pledged to the FHLBNY. At September 30, 2020 and 2019, the Company had available credit from the FHLBNY totaling $61.3 million and $76.7 million, respectively. Information concerning short-term borrowings with the FHLBNY is summarized as follows:

	September 30,
	2020		2019
	(Dollars in thousands)
Balance at end of year	$	—	$	—
Weighted average balance during the year	$	—	$	743
Maximum month-end balance during the year	$	—	$	16,800
Average interest rate during the year		—		2.45%

2. Federal Reserve Bank of New York Advances

The company borrowed $36.9 million in Paycheck Protection Program Liquidity Facility advances from the Federal Reserve Bank of New York (“FRBNY”) during the year ended September 30, 2020. The weighted average interest rate on

76 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

advances outstanding at September 30, 2020 was 0.35%. The advances were collateralized by Paycheck Protection Program loans. The advances are required to be repaid as PPP loans pledged as collateral are repaid or forgiven by the SBA.

PPPLF advances from the FRBNY as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	—
2022		36,924
2023		—
2024		—
2025		—
Thereafter		—
Total	$	36,924

3. Securities Sold Under Reverse Repurchase Agreements

Qualifying repurchase agreements are treated as financings and are reflected as a liability in the Consolidated Balance Sheets. The Company did not have repurchase agreements outstanding at September 30, 2020 and September 30, 2019.

NOTE K – SERVICING POLICY

The Company originates and sells loans receivable secured by one-to four-family residential properties and commercial business loans guaranteed by the Small Business Administration (the “SBA”). The Company has sold loans on a servicing retained basis and on a servicing released basis. Loans sold with servicing retained and servicing released during the year ended September 30, 2020 were $3.9 million and $0, respectively. Loans sold with servicing retained and servicing released during the year ended September 30, 2019 were $2.9 million and $0, respectively. The Company accounts for sales in accordance with ASC 860, Transfers and Servicing. Upon sale, the receivables are removed from the balance sheet, mortgage servicing rights are recorded as an asset for servicing rights retained, and a gain on sale, if applicable, is recognized for the difference between the carrying value of the receivables and the sales proceeds, net of origination costs. 

Gains on sales of loans, representing the difference between the total sales price received for the loans and the allocated cost of the loans, are recognized when mortgage loans are sold and delivered to the purchasers. Loans are accounted for as sold when control of the mortgage is surrendered. Control over the mortgage loans is deemed surrendered when (1) the mortgage loans have been isolated from the Company, (2) the buyer has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the mortgage loans and (3) the Company does not maintain effective control over the mortgage loans through either (a) an agreement that entitles and obligates the Company to repurchase or redeem the mortgage loans before maturity, or (b) the ability to unilaterally cause the buyer to return specific mortgage loans.

The Company services one-to-four family residential mortgage loans for investors in the secondary mortgage market, which are not included in the Consolidated Balance Sheets. The Company’s fee is a percentage of the principal balance and is recognized as income when received. At September 30, 2020 and 2019, the Company was servicing such sold loans in the amount of $5.2 million and $7.2 million, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues and are included in other assets on the Consolidated Balance Sheets. Activity in mortgage servicing rights during the years ended September 30, 2020 and 2019 are summarized as follows:

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	September 30,
	2020			2019
	(In thousands)
Beginning balance	$	26		$	45
Origination of mortgage servicing rights		—			—
Amortization		(14	)		(19	)
Ending balance	$	12		$	26

Mortgage servicing rights are carried at the lower of amortized cost or fair value. Fair values are estimated using discounted cash flows based on a current market interest rate.

The Company also services the SBA guaranteed portion of commercial business loans sold to investors in the secondary market, which are not included in the Consolidated Balance Sheets.  The Company’s fee is a percentage of the principal balance and is recognized as income when received. At September 30, 2020 and 2019, the Company was servicing SBA loans sold in the amount of $22.2 million and $24.6 million, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans.

NOTE L - INCOME TAXES

The Company’s income tax expense is comprised of the following components for the years ended September 30, 2020 and 2019:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at the statutory federal tax rate of 21%
for the year ended September 30, 2020 and 2019, respectively	$	653		$	895
State tax expense		323			397
Other		(55	)		(27	)
Income tax expense	$	921		$	1,265

A reconciliation of income tax at the statutory tax rate to the effective income tax expense for the years ended September 30, 2020 and 2019 is as follows:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at statutory rate	$	653		$	895
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit		323			397
Tax-exempt income, net		(68	)		(64	)
Nondeductible expenses		18			26
Employee stock ownership plan		(5	)		2
Other, net		—			9
Total income tax expense	$	921		$	1,265

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The major sources of temporary differences and their deferred tax effect at September 30, 2020 and 2019 are as follows:

	September 30,
	2020			2019
	(In thousands)
Allowance for loan losses	$	1,799		$	1,374
Deferred loan fees		731			76
Unrealized loss, minimum pension liability		620			537
OREO		73			424
Straight line rent		110			118
Gross deferred tax asset		3,333			2,529
Depreciation		(872	)		(931	)
Discount accretion on investments		(61	)		(89	)
Employee benefits		(37	)		(107	)
Net unrealized gain, investment securities available-for-sale		—			(17	)
Mortgage servicing rights		(3	)		(7	)
Gross deferred tax liability		(973	)		(1,151	)
Net deferred tax asset		2,360			1,378

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and carry forwards are available.

There were no valuation allowances for the year ended September 30, 2020 and 2019. The Company has considered future market growth, forecasted earnings, future taxable income, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made.

On July 1, 2018, the State of New Jersey's Assembly signed into law a new bill, effective January 1, 2018, that imposed a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million. The surtax was set at a rate of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and at a rate of 1.5% for years beginning on or after January 1, 2020, through December 31, 2021. On September 29, 2020, the State of New Jersey's Assembly repealed the scheduled reduction in surtax and extended the temporary 2.5% surtax rate through December 31, 2023. Accordingly, the Company is using an 11.5% State tax rate for the calculation of its State income tax expense the year ended September 30, 2020.

NOTE M - PENSION PLAN

The Company had a noncontributory defined benefit pension plan (the “Plan”) covering all eligible employees. On January 26, 2006, the Plan was frozen and amended to eliminate future benefit accruals after February 15, 2006.

Plan assets are invested in six diversified investment funds of the Pentegra Retirement Trust (the “Trust”), a no load series open-ended mutual fund. The Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus plan liabilities, as governed by the Trust’s Statement of Investment Objectives and Guidelines. The long-term investment objective is to be invested 65% in equity securities (equity mutual funds) and 35% in debt securities (bond mutual funds). Asset rebalancing is performed at least annually, with interim adjustments made when the investment mix varies more than 5% from the target (i.e., a 10% target range). Risk/volatility is further managed by the distinct investment objectives of each of the Trust funds and the diversification within each fund.

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The following table sets forth the Plan’s funded status and amounts recognized in the Company’s Consolidated Balance Sheets at September 30, 2020 and September 30, 2019.

	September 30,
	2020			2019
	(In thousands)
Actuarial present value of benefit obligations	$	5,227		$	4,990
Change in benefit obligations
Projected benefit obligation, beginning	$	4,990		$	4,390
Interest cost		158			182
Actuarial (gain) loss		278			614
Annuity payments and lump sum distributions		(199	)		(196	)
Projected benefit obligation, end	$	5,227		$	4,990
Change in plan assets
Fair value of assets, beginning	$	3,581		$	3,403
Actual return on plan assets		172			124
Employer contributions		25			250
Annuity payments and lump sum distributions		(199	)		(196	)
Fair value of assets, end	$	3,579		$	3,581
Funded status included with other liabilities	$	(1,648	)	$	(1,409	)

Net pension cost for the years ended September 30, 2020 and 2019 included the following components:

	September 30,
	2020			2019
	(In thousands)
Service cost benefits earned during the year	$	—		$	—
Interest cost on projected benefit obligation		158			182
Expected return on plan assets		(225	)		(233	)
Amortization of unrecognized net loss		181			105
Net pension cost	$	114		$	54

For the year ended September 30, 2020 and 2019, the weighted average discount rate used in determining the actuarial net periodic pension cost was 3.25% and 4.25%, respectively. For the year ended September 30, 2020 and 2019, the weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 2.75% and 3.25%, respectively.

The long-term rate-of-return-on-assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn rates of return in the ranges of 6-8% and 3-5%, respectively, with an assumed long-term inflation rate of 2.5% reflected within these ranges for the year ended September 30, 2020. When these overall return expectations are applied to the plan’s target allocation, the result is an expected rate of return of 5.0% to 7.0%. Accordingly, the expected long-term rate of return on assets were 6.25% for 2021 and 6.50% for 2020.

Current Asset Allocation

The Plan’s weighted-average asset allocations at September 30, 2020 and 2019, by asset category are as follows:

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MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	September 30,
	2020		2019
Equity securities		64%		61%
Debt securities (bond mutual funds)		35%		36%
Other (money market fund)		1%		3%
Total		100%		100%

The target asset allocation set for the assets of the Plan are in equity securities ranging from 40 percent to 70 percent and in debt securities ranging from 30 percent to 60 percent. In general, the Plan assets are investment securities that are well-diversified in terms of industry, capitalization and asset class. The Plan assets are mostly a mix of mutual funds indexed to the performance of Fortune 500 U.S. companies, debt securities held in bond funds, domestic and foreign common equity funds, and a money market fund. The Plan’s exposure to a concentration of credit risk is limited by the diversification of the investments into various investment options with multiple asset managers.

Expected Contributions

For the fiscal year ending September 30, 2021, the Company expects to contribute $0 to the Plan.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid as follows (in thousands):

October 1, 2020 through September 30, 2021	$	225
October 1, 2021 through September 30, 2022		226
October 1, 2022 through September 30, 2023		230
October 1, 2023 through September 30, 2024		246
October 1, 2024 through September 30, 2025		245
October 1, 2025 through September 30, 2030		1,286
Total	$	2,458

Included in the funded status of the Plan at September 30, 2020 and 2019, are actuarial losses of $2,060,000 and $1,910,000, respectively. These amounts are included, net of related income tax effects of $620,000 and $537,000, respectively, in the accumulated other comprehensive loss component of stockholders’ equity. During the year ending September 30, 2021, approximately $205,000 of the actuarial losses is expected to be amortized into net periodic pension expense.

The following table presents the Plan assets that are measured at fair value on a recurring basis by level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note R for further detail regarding fair value hierarchy.

81 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2020
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	468	$	468	$	—	$	—
Large-Cap Core		576		576		—		—
Mid-Cap Core		220		220		—		—
Small-Cap Core		196		196		—		—
Non-U.S. Core		833		833		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,241		1,241		—		—
Cash Equivalents
Money Market		45		45		—		—
Total Investment	$	3,579	$	3,579	$	—	$	—

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2019
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	484	$	484	$	—	$	—
Large-Cap Core		500		500		—		—
Mid-Cap Core		205		205		—		—
Small-Cap Core		193		193		—		—
Non-U.S. Core		802		802		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,304		1,304		—		—
Cash Equivalents
Money Market		93		93		—		—
Total Investment	$	3,581	$	3,581	$	—	$	—

Equity and debt securities are reported at fair value in the table above utilizing exchange quoted prices in active markets for identical instruments (Level 1 inputs).

NOTE N - NONQUALIFIED COMPENSATION PLAN

The Company maintains a Supplemental Executive Retirement Plan (“SERP”) for the benefit of its senior officers. In addition, the Company also adopted voluntary Deferred Income and Emeritus Plans on behalf of its directors and those directors elected by the Board as “Director Emeritus.” The SERP provides the Company with the opportunity to supplement the retirement income of selected officers to achieve equitable wage replacement at retirement while the Deferred Income Plan provides participating directors with an opportunity to defer all or a portion of their fees into a tax deferred

82 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

accumulation account for future retirement. The Director Emeritus Plan enables the Company to reward its directors for longevity of service in consideration of their availability and consultation. The SERP is based upon achieving a total retirement benefit equal to a percentage of the participants’ final annual salary.

In 2001, the Company adopted a New Director Emeritus Plan (the “New Plan”), which supplemented the prior Director Emeritus Plans. Under the New Plan, the directors will be entitled to a benefit upon attainment of his/her benefit age. The directors will receive an annual amount in monthly installments based on his/her total Board and Committee fees in the twelve months prior to attainment of his/her benefit age. The amount will be ten percent (10%) plus two and one-half percent (2 1/2%) for each year of service as a Director, with a minimum of fifty percent (50%), provided the Director has served for at least five (5) years, and a maximum of sixty percent (60%). The maximum benefit increases for any Director serving as Chairman of the Board to seventy-five percent (75%).

The Company funds the plans through a modified endowment contract. Income recorded for the plans represents life insurance income as recorded based on the projected increases in cash surrender values of life insurance policies. As of September 30, 2020 and 2019, the Life Insurance Contracts had cash surrender values of approximately $13,971,000 and $13,647,000, respectively.

The Company is recording benefit costs so that the cost of each participant’s retirement benefits is being expensed and accrued over the participant’s active employment so as to result in a liability at retirement date equal to the present value of the benefits expected to be provided.

NOTE O - 401(K) EMPLOYEE CONTRIBUTION PLAN

The Company has a defined contribution 401(k) plan covering all employees, as defined under the plan document. Employees may contribute to the plan, as defined under the plan document, and the Company can make discretionary contributions. The Company contributed $175,000 to the plan for the years ended September 30, 2020 and 2019, and is included in compensation and employee benefits in the accompanying Consolidated Statements of Operations.

NOTE P - COMMITMENTS

1.       Lease Commitments

Approximate future minimum payments under non-cancelable operating leases are due as follows for the years indicated (in thousands):

September 30, 2021	$	705
September 30, 2022		592
September 30, 2023		599
September 30, 2024		602
September 30, 2025		378
Thereafter		1,208
Total	$	4,084

The Company adopted Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842), on October 1, 2019. Topic 842 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset, measured at the present value of the future minimum lease payments, at the lease commencement date. The Company adopted this guidance on October 1, 2019, electing the modified retrospective transition approach method that does not adjust previous periods. The Company also elected not to include short-term leases (i.e., leases with initial term of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition as provided for in the guidance.

The Company has operating leases for five branch locations. Our leases have remaining lease terms of up to 11 years, some of which include options to extend the leases for up to 10 additional years. Operating leases are recorded as

83 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

ROU assets and lease liabilities and are included within Other assets and Accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement base on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The Company recorded a $3.8 million operating lease right-of-use asset and operating lease liability beginning October 1, 2019. The incremental borrowing rate used by the Company to value its operating leases was based on the interpolated term advance rate available from the Federal Home Loan Bank of New York, based on the remaining lease term as of October 1, 2019.

At September 30, 2020, the Company’s operating lease right-of-use assets and operating lease liabilities totaled $3.2 million and $3.6 million, respectively.

The following table presents the balance sheet information related to our leases:

	September 30, 2020
	(Dollars in thousands)
Operating lease right-of-use asset	$	3,240
Operating lease liabilities	$	3,631
Weighted average remaining lease term in years		7.5
Weighted average discount rate		2.2%

The following table summarizes the maturity of our remaining lease liabilities by year:

	September 30, 2020
	(In thousands)
For the Year Ending:
2021	$	705
2022		595
2023		602
2024		602
2025		378
2026 and thereafter		1,150
Total lease payments		4,032
Less imputed interest		(401	)
Present value of lease liabilities	$	3,631

Total rental expense, included in occupancy expense, was approximately $802,000 and $791,000 for the years ended September 30, 2020 and 2019, respectively.

2.       Contingencies

The Company and its subsidiaries, from time to time, are a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

NOTE Q - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

84 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The Company may use derivative financial instruments, such as interest rate floors and collars, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. As of September 30, 2020 and 2019, the Company did not hold any interest rate floors or collars.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for commitments to extend credits is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

At September 30, 2020 and 2019, the Company had outstanding commitments (substantially all of which expire within one year) to originate one-to four-family residential loans, construction loans, commercial real estate loans, commercial business loans and consumer loans. These commitments were comprised of fixed and variable rate loans.

	September 30,
	2020		2019
	(In thousands)
Financial instruments whose contract amounts
represent credit risk
Letters of credit	$	1,041	$	1,315
Unused lines of credit		78,632		56,405
Fixed rate loan commitments		5,240		3,362
Variable rate loan commitments		15,864		12,141
Total	$	100,777	$	73,223

NOTE R - FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and other real estate owned, or OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

In accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1-	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2-	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3-	Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation

85 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.

Securities available-for-sale

The Company’s available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S. government and government-sponsored enterprise obligations, municipal bonds, and mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities.

The following table provides the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	364	$	—	$	364	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,194		—		9,194		—
Debt securities		5,003		—		5,003		—
Total securities available for sale	$	14,561	$	—	$	14,561	$	—

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	495	$	—	$	495	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,708	$	—	$	14,708	$	—
Debt securities		1,500		—		1,500		—
Total securities available for sale	$	16,703	$	—	$	16,703	$	—

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Mortgage Servicing Rights

Mortgage Servicing Rights (MSR’s) are carried at the lower of amortized cost or estimated fair value. The estimated fair value of MSRs is determined through a calculation of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate

86 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

movements and, as such, are classified as Level 3. No valuation write-downs were made to MSR’s during the years ended September 30, 2020 and 2019.

Impaired Loans

Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate; 2) the asset’s observable market price; or 3) the fair value of the collateral if the asset is collateral dependent. The regulatory agencies require this method for loans from which repayment is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling and disposition costs. Fair value is estimated through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and, as such, are generally classified as Level 3.

Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Bank’s credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. However, the Company also obtains updated appraisals on performing construction loans that are approaching their maturity date to determine whether or not the fair value of the collateral securing the loan remains sufficient to cover the loan amount prior to considering an extension. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss.

Other Real Estate Owned

Other real estate owned is carried at lower of cost or estimated fair value less disposal costs. The estimated fair value of the real estate is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions. As such, other real estate owned is generally classified as Level 3. Valuation write-downs totaling $371,000 were made to five properties held as other real estate owned during the year ended September 30, 2020. The properties were written down based on an updated appraisal of the real estate.

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	11,874	$	—	$	—	$	11,874
Other real estate owned		2,594		—		—		2,594
Total	$	14,468	$	—	$	—	$	14,468

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	6,835	$	—	$	—	$	6,835
Other real estate owned		7,528		—		—		7,528
Total	$	14,363	$	—	$	—	$	14,363

87 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2020	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$   11,874	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -50.0% (-11.6%)
Other real estate owned	$     2,594	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -27.4% (-14.7%)

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2019	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$     6,835	Appraisal of collateral (1)	Appraisal adjustments (2)	-1.9% to -67.2% (-25.0%)
Other real estate owned	$     7,528	Appraisal of collateral (1)	Liquidation expenses (2)	-9.2% to -48.5% (-19.4%)

(1) Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized cost as of September 30, 2020 and September 30, 2019. This table excludes financial instruments for which the carrying amount approximates fair value, which includes cash and cash equivalents, FHLB stock, bank owned life insurance, accrued interest receivable, interest and non-interest bearing demand, savings deposits, and accrued interest payable. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

88 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
September 30, 2020
Financial instruments - assets
Investment securities held-to-maturity	$	30,443	$	30,899	$	—	$	30,899	$	—
Loans		603,110		617,418		—		—		617,418
Financial instruments - liabilities
Certificates of deposit		126,375		128,590		—		128,590		—
Borrowings		67,410		68,386		—		68,386		—
September 30, 2019
Financial instruments - assets
Investment securities held-to-maturity	$	29,481	$	29,344	$	—	$	29,344	$	—
Loans		518,217		527,088		—		—		527,088
Financial instruments - liabilities
Certificates of deposit		116,776		117,730		—		117,730		—
Borrowings		36,189		36,583		—		36,583		—

NOTE S - REGULATORY CAPITAL

The Company and Bank are required to maintain minimum amounts of capital to total “risk-weighted” assets, as defined by the banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The federal banking agencies substantially amended the regulatory risk-based capital rules applicable to the Bank in 2015. The amendments implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The rule includes a minimum common equity Tier 1 capital (“CET1”) to risk-weighted assets ratio of 4.5% of risk-weighted assets, a minimum Tier 1 capital to risk-weighted assets of 6.0% and a minimum leverage ratio of 4.0%. The required minimum ratio of total capital to risk-weighted assets is 8.0%.

The amended rules also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and resulted in the following phased-in minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations established a maximum percentage of eligible retained income that could be utilized for such actions.

As of September 30, 2020, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

The following tables set forth the Company’s and the Bank’s actual and required capital levels under those measures:

89 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

September 30, 2020 and 2019

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2020		adequacy purposes	action provisions
	Company	Bank	September 30, 2020	Bank
Tier 1 leverage ratio	7.84%	8.30%	≥  4.00%	≥   5.00%
CET1	11.84%	11.93%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.93%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	13.09%	13.18%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2019		adequacy purposes	action provisions
	Company	Bank	September 30, 2019	Bank
Tier 1 leverage ratio	8.94%	9.03%	≥  4.00%	≥   5.00%
CET1	11.84%	11.96%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.96%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	12.88%	12.99%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

90 

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has been no change in Magyar Bancorp, Inc.'s internal control over financial reporting during Magyar Bancorp, Inc.'s fourth quarter of fiscal year 2020 that has materially affected, or is reasonably likely to materially affect, Magyar Bancorp, Inc.'s internal control over financial reporting.

Report by Management on Internal Control over Financial Reporting

The management of Magyar Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Magyar Bancorp Inc.'s internal control system was designed to provide reasonable assurance to the Magyar Bancorp, Inc.'s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Magyar Bancorp, Inc.'s management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of September 30, 2020, the Company's internal control over financial reporting was effective based on those criteria.

The Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to exemption rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers, and Corporate Governance

Magyar Bancorp, Inc. has adopted a Code of Ethics that applies to Magyar Bancorp, Inc.’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics, and any amendments to and waivers from the Code of Ethics, will be posted on the Company’s website

91 

located at www.magbank.com. A copy of the Code will be furnished without charge upon written request to the Secretary, Magyar Bancorp, Inc., 400 Somerset Street, New Brunswick, New Jersey.

Information concerning directors and executive officers of Magyar Bancorp, Inc. is incorporated herein by reference from our definitive Proxy Statement related to our 2021 Annual Meeting of Stockholders (the “Proxy Statement”), specifically the section captioned “Proposal I - Election of Directors.”

ITEM 11. Executive Compensation

Information concerning executive compensation is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Proposal I - Election of Directors.”

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain owners and management is incorporated herein by reference from our Proxy Statement, specifically the sections captioned “Voting Securities and Principal Holders Thereof” and “Proposal I - Election of Directors.”

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Information concerning relationships and transactions is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Transactions with Certain Related Persons.”

ITEM 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services is incorporated herein by reference from our Proxy Statement, specifically the section captioned “Proposal II - Ratification of Appointment of Independent Registered Public Accounting Firm.”

92 

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules
3.1	Certificate of Incorporation of Magyar Bancorp, Inc.*
3.2	Bylaws of Magyar Bancorp, Inc.*
4.1	Form of Common Stock Certificate of Magyar Bancorp, Inc.*
4.2	Description of the Capital Stock of Magyar Bancorp, Inc. *
10.1	Form of Employee Stock Ownership Plan*
10.2	Restated Director Supplemental Retirement Income and Deferred Compensation Agreement for Joseph A. Yelencsics**
10.3	Restated Director Supplemental Retirement Income and Deferred Compensation Agreement for Edward C. Stokes, III**
10.4	Restated Director Supplemental Retirement Income and Deferred Compensation Agreement for Martin A. Lukacs**
10.5	Restated Director Supplemental Retirement Income and Deferred Compensation Agreement for Thomas Lankey**
10.6	Restated Director Supplemental Retirement Income and Deferred Compensation Agreement for Andrew G. Hodulik**
10.7	Form of Change in Control Agreement for Executive Officers*
10.8	Executive Supplemental Retirement Income Agreement for John Fitzgerald**
10.9	Executive Supplemental Retirement Income Agreement for Jon Ansari**
10.10	2006 Equity Incentive Plan***
10.11	Employment Agreement for John Fitzgerald****
10.12	Employment Agreement for Jon Ansari*****
10.13	Supplemental Executive Retirement Plan for John Fitzgerald******
10.14	Supplemental Executive Retirement Plan for Jon Ansari******
21	Subsidiaries of Registrant*
23	Consent of Experts and Counsel
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Company’s Annual Report on Form 10-K for the year ended September 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.

_____________________________

* Incorporated by reference to the Registration Statement on Form SB-2 of Magyar Bancorp, Inc. (file no. 333-128392), originally filed with the Securities and Exchange Commission on September 16, 2005, as amended.

** Incorporated by reference to the Annual Report on Form 10-KSB of Magyar Bancorp, Inc. (file no. 000-51726), originally filed with the Securities and Exchange Commission on December 29, 2006.

*** Incorporated by reference to the Plan filed as an attachment to the Company’s proxy statement dated January 8, 2007, filed with the Securities and Exchange Commission on January 8, 2007.

**** Incorporated by reference to the Quarterly Report on Form 10-Q of Magyar Bancorp, Inc. (file no. 000-51726), originally filed with the Securities and Exchange Commission on October 30, 2007 and as amended by reference to the Quarterly Report on Form 10-Q of Magyar Bancorp, Inc. originally filed with the Securities and Exchange Commission on August 14, 2012.

***** Incorporated by reference to the Quarterly Report on Form 10-Q of Magyar Bancorp, Inc. (file no. 000-51726), originally filed with the Securities and Exchange Commission on August 14, 2012.

****** Incorporated by reference to the Current Report on Form 8-K of Magyar Bancorp, Inc. (file no 000-51726), originally filed with the Securities and Exchange Commission on May 29, 2019.

93 

ITEM 16. Form 10-K Summary

None

94 

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MAGYAR BANCORP, INC.
December 18, 2020	By:	/s/ John S. Fitzgerald
Date		John S. Fitzgerald
		President and Chief Executive Officer
		(Duly Authorized Representative)

95 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ John S. Fitzgerald	President and Chief Executive Officer	December 17, 2020
John S. Fitzgerald	(Principal Executive Officer)
/s/ Jon R. Ansari	Executive Vice President and Chief Financial Officer	December 17, 2020
Jon R. Ansari	(Principal Financial and Accounting Officer)
/s/ Thomas Lankey	Chairman of the Board	December 17, 2020
Thomas Lankey
/s/ Andrew Hodulik	Vice Chairman of the Board	December 17, 2020
Andrew Hodulik
/s/ Martin A. Lukacs	Director	December 17, 2020
Martin A. Lukacs, D.M.D.
/s/ Joseph A. Yelencsics	Director	December 17, 2020
Joseph A. Yelencsics
/s/ Edward C. Stokes	Director	December 17, 2020
Edward C. Stokes, III

96 

EX-4.2

Exhibit 4.2

DESCRIPTION OF CAPITAL STOCK OF MAGYAR BANCORP, INC.

The summary of the general terms and provisions of Magyar Bancorp, Inc.’s (the “Company”) capital stock set forth below does not purport to be complete and is subject to and qualified by reference to the Company’s Certificate of Incorporation and Bylaws, each of which is incorporated by reference as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission of which this Exhibit is a part. For additional information, please read the Company’s Certificate of Incorporation and Bylaws and the applicable provisions of the Delaware General Corporation Law.

GENERAL

Magyar Bancorp, Inc. is authorized to issue 8,000,000 shares of common stock having a par value of $0.01 per share and 1,000,000 shares of serial preferred stock. Each share of Magyar Bancorp, Inc.’s common stock has the same relative rights as, and are identical in all respects with, each other share of common stock.

The Board of Directors can, without stockholder approval, issue additional shares of common stock, although Magyar Bancorp, MHC, so long as it is in existence, must own a majority of Magyar Bancorp, Inc.’s outstanding shares of common stock. Magyar Bancorp, Inc.’s issuance of additional shares of common stock could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

COMMON STOCK

DISTRIBUTIONS. Magyar Bancorp, Inc. can pay dividends if, as and when declared by its Board of Directors, subject to compliance with limitations that are imposed by law. The holders of common stock of Magyar Bancorp, Inc. are entitled to receive and share equally in such dividends as may be declared by the Board of Directors of Magyar Bancorp, Inc. out of funds legally available therefor. Dividends from Magyar Bancorp, Inc. depend, in part, upon the receipt of dividends from Magyar Bank. Pursuant to our certificate of incorporation, Magyar Bancorp, Inc. is authorized to issue preferred stock. If Magyar Bancorp, Inc. does issue preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends.

VOTING RIGHTS. The holders of common stock of Magyar Bancorp, Inc. possess exclusive voting rights in Magyar Bancorp, Inc. Each holder of common stock is entitled to one vote per share and does not have any right to cumulate votes in the election of directors. Under certain circumstances, shares in excess of 10% of the issued and outstanding shares of common stock may be considered “Excess Shares” and, accordingly, will not be entitled to vote. If Magyar Bancorp, Inc. issues preferred stock, holders of the preferred stock may also possess voting rights.

LIQUIDATION. In the event of any liquidation, dissolution or winding up of Magyar Bank, Magyar Bancorp, Inc., as holder of Magyar Bank’s capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of Magyar Bank, including all deposit accounts and accrued interest thereon, all assets of Magyar Bank available for distribution. In the event of liquidation, dissolution or winding up of Magyar Bancorp, Inc., the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of Magyar Bancorp, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution.

RIGHTS TO BUY ADDITIONAL SHARES. Holders of the common stock of Magyar Bancorp, Inc. are not entitled to preemptive rights with respect to any shares that may be issued. Preemptive rights are the priority right to buy additional shares if Magyar Bancorp, Inc. issues more shares in the future. The common stock is not subject to redemption.

PREFERRED STOCK

No shares of preferred stock are currently outstanding. Preferred stock may be issued with such preferences and designations as the Board of Directors may from time to time determine. The Board of Directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights, which could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

97 

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS AFFECTING STOCK

Magyar Bancorp, Inc.’s Certificate of Incorporation and Bylaws contain several provisions that may make Magyar Bancorp, Inc. a less attractive target for an acquisition of control by anyone who does not have the support of Magyar Bancorp, Inc.’s board of directors. Such provisions include, among other things, the requirement of a supermajority vote of stockholders or directors to approve certain business combinations, several special procedural rules and a vote limitation provision. Additionally, our Bylaws provide that we will indemnify our directors and executive officers to the fullest extent permitted by law. The foregoing is qualified in its entirely by reference to Magyar Bancorp, Inc.’s Certificate of Incorporation and Bylaws, both of which are on file with the SEC.

MAGYAR BANCORP, MHC’S CONTROL OVER THE COMPANY’S COMMON STOCK

Magyar Bancorp, MHC owns a majority of Magyar Bancorp, Inc.’s common stock and, through its Board of Directors, exercises voting control over the outcome of all matters put to a vote of stock holders (including the election of directors), except for matters that require a vote greater than a majority. Public stockholders own a minority of the outstanding shares of Magyar Bancorp, Inc.’s common stock. The same directors and officers who manage Magyar Bancorp, Inc. and Magyar Bank also manage Magyar Bancorp, MHC. In addition, regulatory restrictions applicable to Magyar Bancorp, MHC prohibit the sale of Magyar Bancorp, Inc. unless the mutual holding company first undertakes a second-step conversion.

RESTRICTIONS ON OWNERSHIP

Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire “control” of a bank holding company or bank. An acquisition of “control” can occur upon the acquisition of 10% or more of a class of voting securities of a bank holding company or bank or as otherwise defined by the Federal Reserve. Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition.

98 

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (No. 333-149297) on Form S-8 of Magyar Bancorp, Inc. and Subsidiary of our report dated December 18, 2020, relating to the consolidated financial statements of Magyar Bancorp, Inc. and Subsidiary, appearing in the Annual Report on Form 10-K of Magyar Bancorp, Inc. and Subsidiary for the year ended September 30, 2020.

/s/ RSM US LLP

Blue Bell, Pennsylvania

December 18, 2020

99 

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John S. Fitzgerald, certify that:

1. I have reviewed this Annual Report on Form 10-K of Magyar Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 18, 2020	/s/ John S. Fitzgerald
Date	John S. Fitzgerald
	President and Chief Executive Officer

100 

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jon R. Ansari, certify that:

1. I have reviewed this Annual Report on Form 10-K of Magyar Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

December 18, 2020	/s/ Jon R. Ansari
Date	Jon R. Ansari
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

John S. Fitzgerald, President and Chief Executive Officer and Jon R. Ansari, Executive Vice President and Chief Financial Officer of Magyar Bancorp, Inc. (the “Company”) each certify in their capacity as officers of the Company that they have reviewed the annual report of the Company on Form 10-K for the fiscal year ended September 30, 2020 and that to the best of their knowledge:

1. the report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and

2. the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

December 18, 2020	/s/ John S. Fitzgerald
Date	John S. Fitzgerald
	President and Chief Executive Officer
December 18, 2020	/s/ Jon R. Ansari
Date	Jon R. Ansari
	Executive Vice President and Chief Financial Officer

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.

A signed original of this written statement required by Section 906 has been provided to Magyar Bancorp, Inc. and will be retained by Magyar Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Sep. 30, 2020	Dec. 15, 2020	Mar. 31, 2020
Entity Registrant Name	Magyar Bancorp, Inc.
Entity Central Index Key	0001337068
Document Type	10-K
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Public Float			$ 23.5
Entity Common Stock, Shares Outstanding		5,810,746
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2020
Entity Interactive Data Current	Yes
Entity Incorporation, State or Country Code	DE
Entity File Number	000-51726
Document Annual Report	true
Document Transition Report	false
Magyar Bancorp, MHC [Member]
Entity Common Stock, Shares Owned by Registrant's mutual holding company		3,200,450

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Assets
Cash	$ 1,494	$ 825
Interest earning deposits with banks	60,232	20,644
Total cash and cash equivalents	61,726	21,469
Investment securities - available for sale, at fair value	14,561	16,703
Investment securities - held to maturity, at amortized cost (fair value of $30,899 and $29,344 at September 30, 2020 and 2019, respectively)	30,443	29,481
Federal Home Loan Bank of New York stock, at cost	1,981	2,222
Loans receivable, net of allowance for loan losses of $6,400 and $4,888 at September 30, 2020 and 2019, respectively	603,110	518,217
Bank owned life insurance	13,971	13,647
Accrued interest receivable	4,030	2,133
Premises and equipment, net	14,746	16,172
Other real estate owned ("OREO")	2,594	7,528
Other assets	6,835	2,756
Total assets	753,997	630,328
Liabilities
Deposits	618,330	530,075
Escrowed funds	2,413	2,399
Borrowings	67,410	36,189
Accrued interest payable	191	191
Accounts payable and other liabilities	8,803	6,823
Total liabilities	697,147	575,677
Stockholders' equity
Preferred stock: $.01 Par Value, 1,000,000 shares authorized; none issued
Common stock: $.01 Par Value, 8,000,000 shares authorized; 5,923,742 issued; 5,810,746 and 5,820,746 shares outstanding at September 30, 2020 and 2019, respectively, at cost	59	59
Additional paid-in capital	26,294	26,317
Treasury stock: 112,996 and 102,996 shares at September 30, 2020 and 2019, respectively, at cost	(1,242)	(1,152)
Unearned Employee Stock Ownership Plan shares	(65)	(214)
Retained earnings	33,161	30,971
Accumulated other comprehensive loss	(1,357)	(1,330)
Total stockholders' equity	56,850	54,651
Total liabilities and stockholders' equity	$ 753,997	$ 630,328

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Statement of Financial Position [Abstract]
Fair value of investment securities - held to maturity	$ 30,899	$ 29,344
Allowance for loan losses	$ 6,400	$ 4,888
Preferred stock; par value	$ 0.01	$ 0.01
Preferred stock; shares authorized	1,000,000	1,000,000
Preferred stock; shares issued	0	0
Common stock; par value	$ 0.01	$ 0.01
Common stock; shares authorized	8,000,000	8,000,000
Common stock; shares issued	5,923,742	5,923,742
Common stock, shares outstanding	5,810,746	5,820,746
Treasury stock, shares	112,996	102,996

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Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Interest and dividend income
Loans, including fees	$ 25,626	$ 25,154
Investment securities
Taxable	1,173	1,800
Federal Home Loan Bank of New York stock	128	149
Total interest and dividend income	26,927	27,103
Interest expense
Deposits	4,770	5,921
Borrowings	743	789
Total interest expense	5,513	6,710
Net interest and dividend income	21,414	20,393
Provision for loan losses	1,666	668
Net interest and dividend income after provision for loan losses	19,748	19,725
Other income
Service charges	901	1,374
Income on bank owned life insurance	324	304
Other operating income	106	148
Gains on sales of loans	317	193
Gains on sales of investment securities	68	117
Total other income	1,716	2,136
Other expenses
Compensation and employee benefits	10,283	10,133
Occupancy expenses	2,995	2,983
Professional fees	1,558	1,101
Data processing expenses	589	648
OREO expenses	499	334
FDIC deposit insurance premiums	479	326
Loan servicing expenses	308	286
Insurance expense	197	205
Other expenses	1,445	1,584
Total other expenses	18,353	17,600
Income before income tax expense	3,111	4,261
Income tax expense	921	1,265
Net income	$ 2,190	$ 2,996
Net income per share-basic and diluted	$ 0.38	$ 0.51
Weighted average basic and diluted shares outstanding	5,817,480	5,820,746

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 2,190	$ 2,996
Other comprehensive income
Unrealized gain on securities available for sale	127	933
Less reclassification adjustments for:
Net gains realized on securities available for sale	(68)	(117)
Net unrealized gain on securities available for sale	59	816
Defined benefit pension plan	(150)	(618)
Other comprehensive income, before tax	(91)	198
Deferred income tax effect	64	(54)
Total other comprehensive income (loss)	(27)	144
Total comprehensive income	$ 2,163	$ 3,140

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Unearned ESOP Shares [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance, at Sep. 30, 2018	$ 59	$ 26,310	$ (1,152)	$ (356)	$ 27,975	$ (1,474)	$ 51,362
Balance, shares at Sep. 30, 2018	5,820,746
Net income					2,996		2,996
Other comprehensive income						144	144
ESOP shares allocated		7		142			149
Balance, at Sep. 30, 2019	$ 59	26,317	(1,152)	(214)	30,971	(1,330)	$ 54,651
Balance, shares at Sep. 30, 2019	5,820,746						5,820,746
Net income					2,190		$ 2,190
Other comprehensive income						(27)	(27)
Purchase of treasury stock			(90)				(90)
Purchase of treasury stock, shares	(10,000)
ESOP shares allocated		(23)		149			126
Balance, at Sep. 30, 2020	$ 59	$ 26,294	$ (1,242)	$ (65)	$ 33,161	$ (1,357)	$ 56,850
Balance, shares at Sep. 30, 2020	5,810,746						5,810,746

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Operating activities
Net income	$ 2,190	$ 2,996
Adjustment to reconcile net income to net cash provided by operating activities
Depreciation expense	854	871
Premium amortization on investment securities, net	107	105
Provision for loan losses	1,666	668
Provision for loss on other real estate owned	371	212
Originations of SBA loans held for sale	(3,623)	(2,683)
Proceeds from the sales of SBA loans	3,941	2,876
Gains on sale of loans receivable	(318)	(193)
Gains on sales of investment securities	(68)	(117)
Gains on the sales of other real estate owned	(42)	(57)
Loss on the sale of premises and equipment	16
ESOP compensation expense	126	149
Deferred income tax benefit	(880)	(292)
(Increase) decrease in accrued interest receivable	(1,897)	48
Increase in surrender value of bank owned life insurance	(324)	(304)
Decrease (increase) in other assets	700	(226)
Decrease in accrued interest payable		(2)
(Decrease) increase in accounts payable and other liabilities	(2,005)	1,738
Net income to net cash provided by operating activities	814	5,789
Investing activities
Net increase in loans receivable	(72,887)	(20,410)
Purchases of loans receivable	(13,672)
Proceeds from the sale of loans receivable		9,452
Purchases of investment securities held to maturity	(10,226)	(1,645)
Purchases of investment securities available for sale	(9,557)	(3,088)
Sales of investment securities available for sale	6,073	6,575
Principal repayments on investment securities held to maturity	9,206	5,750
Principal repayments on investment securities available for sale	5,704	3,166
Purchases of bank owned life insurance		(1,500)
Purchases of premises and equipment	(147)	(53)
Sales of premises and equipment	703
Investment in other real estate owned	(1)	(11)
Proceeds from other real estate owned	4,606	1,417
Redemption (purchase) of Federal Home Loan Bank stock	241	(58)
Net cash used in investing activities	(79,957)	(405)
Financing activities
Net increase (decrease) in deposits	88,255	(62)
Net increase in escrowed funds	14	114
Proceeds from long-term advances	41,515	9,605
Repayments of long-term advances	(10,294)	(8,940)
Purchase of treasury stock	(90)
Net cash provided by financing activities	119,400	717
Net increase in cash and cash equivalents	40,257	6,101
Cash and cash equivalents, beginning of year	21,469	15,368
Cash and cash equivalents, end of year	61,726	21,469
Cash paid for
Interest		6,711
Income taxes	5,513	1,059
Non-cash operating activities
Real estate acquired in full satisfaction of loans in foreclosure		$ 503

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ORGANIZATION

12 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

NOTE A - ORGANIZATION

On January 23, 2006, Magyar Bank (the “Bank”) completed a reorganization involving a series of transactions by which Bank’s corporate structure was changed from a mutual savings bank to the mutual holding company form of ownership. Magyar Bank became a New Jersey-chartered stock savings bank subsidiary of Magyar Bancorp, Inc., a Delaware-chartered mid-tier stock holding company. Magyar Bancorp, Inc. (the “Company”) owns 100% of the outstanding shares of common stock of Magyar Bank. Magyar Bancorp, Inc. is a majority-owned subsidiary of Magyar Bancorp, MHC, a New Jersey-chartered mutual holding company.

Magyar Bancorp, MHC, owns 54.03%, or 3,200,450, of the issued shares of common stock of Magyar Bancorp, Inc. Of the remaining shares, 2,610,296, or 44.06%, are held by public stockholders and 112,996, or 1.91%, are held by Magyar Bancorp, Inc. in treasury stock. So long as Magyar Bancorp, MHC exists, it will be required to own a majority of the voting stock of Magyar Bancorp, Inc. Magyar Bancorp, Inc. and Magyar Bancorp, MHC are subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System and the New Jersey Department of Banking and Insurance.

The Bank is subject to regulations issued by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation (the “FDIC”). The Bank’s administrative office is located in New Brunswick, New Jersey. The Bank has seven branch offices which are located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey, and a loan product office located in Keyport, New Jersey. The Bank’s savings deposits are insured by the FDIC through the Deposit Insurance Fund (“DIF”); also, the Bank is a member of the Federal Home Loan Bank of New York.

Magyar Investment Company, a New Jersey investment corporation subsidiary of the Bank, was formed on August 15, 2006 for the purpose of buying, selling and holding investment securities.

Hungaria Urban Renewal, LLC is a Delaware limited-liability corporation established in 2002 as a qualified intermediary operating for the purpose of acquiring and developing the Bank’s new main office. The Bank owns a 100% interest in Hungaria Urban Renewal, LLC, which has no other business other than owning the Bank’s main office site.

Magyar Service Corporation, a New Jersey corporation, is a wholly owned, non-bank subsidiary of the Bank. Magyar Service Corporation, which also operates under the name Magyar Financial Services, receives commissions from annuity and life insurance sales referred to a licensed, non-bank financial planner.

The Bank competes with other banking and financial institutions in its primary market areas. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time certificates of deposit and all types of loans. Such institutions, as well as consumer financial and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders.

The Bank is subject to regulations of certain state and federal agencies and, accordingly, the Bank is periodically examined by such regulatory authorities. As a consequence of the regulation of commercial banking activities, the Bank’s business is particularly susceptible to future state and federal legislation and regulations.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Financial Statement Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and its wholly-owned subsidiaries Magyar Investment Company, Magyar Service Corporation, and Hungaria Urban Renewal, LLC. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

The Company has evaluated subsequent events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2020, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were available to be issued.

In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses and the deferred tax asset. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses.

The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

2. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, time deposits with original maturities less than three months and overnight deposits.

3. Investment Securities

The Company classifies its investment securities into one of three portfolios: held to maturity, available for sale or trading. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt securities not classified as either trading securities or as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive income (“AOCI”) component of stockholders’ equity. Equity securities, with certain exceptions, are measured at fair value with changes in fair value recognized in net income.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available for sale, held to maturity or trading. Temporary impairments on “available for sale” securities are recognized, on a tax-effected basis, through AOCI with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Conversely, the Company does not adjust the carrying value of “held to maturity” securities for temporary impairments, although information concerning the amount and duration of impairments on held to maturity securities is generally disclosed in periodic consolidated financial statements. The carrying value of securities held in a trading portfolio is adjusted to their fair value through earnings on a daily basis. However, the Company maintained no securities in trading portfolios at or during the periods presented in these consolidated financial statements. 

The Company accounts for other-than-temporary impairments based upon several considerations. First, other-than-temporary impairments on securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of the their fair value to a level equal to their amortized cost, are recognized in operations. If neither of these criteria apply, then the other-than-temporary impairment is separated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt securities are recognized, net of deferred taxes, in AOCI.

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to purchase and hold restricted stock of its district FHLB according to a predetermined formula. This stock is restricted in that it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at cost, less any applicable impairment charges.

Premiums and discounts on all securities are amortized or accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments on mortgage-backed securities. Gain or loss on sales of securities is recognized on the specific identification method.

4. Loans and Allowance for Loan Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, adjusted for net deferred loan fees and costs, and reduced by an allowance for loan losses. Interest on loans is accrued and credited to operations based upon the principal amounts outstanding. The allowance for loan losses is established through a provision for possible loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Income recognition of interest is discontinued when, in the opinion of management, the collectability of such interest becomes doubtful. A loan is generally classified as non-accrual when the scheduled payment(s) due on the loan is delinquent for more than three months. Loan origination fees and certain direct origination costs are deferred and amortized over the life of the related loans as an adjustment to the yield on loans receivable using the effective interest method.

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse.  Confirmation of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within the portfolio.  Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis.

The allowance for loan losses is maintained at an amount management deems adequate to cover estimated losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrowers’ ability to repay and repayment performance, and estimated collateral values. In the opinion of management, the present allowance is adequate to absorb reasonable, foreseeable loan losses. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management’s determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Charge-offs to the allowance are made when the loan is transferred to other real estate owned or other determination of a confirmed loss. Recoveries on loans previously charged off are also recorded through the allowance.

A loan is considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or as a practical expedient, at the loan’s current observable market price, or the fair value of the collateral if the loan is collateral dependent. The amount by which the recorded investment of an impaired loan exceeds the measurement value is recognized by creating a valuation allowance through a charge to the provision for loan losses. Impairment criteria generally do not apply to those smaller-balance homogeneous loans that are collectively evaluated for impairment which, for the Company, includes one- to four-family first mortgage loans and consumer loans, other than those modified in a troubled debt restructuring.

The Company records cash receipts on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges unless specifically directed by the Bankruptcy Court to apply payments otherwise. The Company may continue to recognize interest income on impaired loans where there is no confirmed loss.

5. Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation, and include capitalized expenditures for new facilities, major betterments and renewals. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method based upon the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes. Leasehold improvements are depreciated using the straight-line method based upon the initial term of the lease.

The Company accounts for the impairment of long-lived assets in accordance with US GAAP, which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale. The Company had no impaired long-lived assets at September 30, 2020 and 2019.

6. Revenue recognition

The Company recognizes revenue in the consolidated statements of income as it is earned and when collectability is reasonably assured. The primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts, or other similar contracts. Non-interest income is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income includes earnings on bank-owned life insurance, deposit accounts, merchant services, ATM and debit card fees, mortgage banking activities, and other miscellaneous services and transactions.

The Company’s contracts with customers in the scope of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” are contracts for deposit accounts and contracts for non-deposit investment accounts through a third party service provider.  Both types of contracts result in non-interest income being recognized. The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of service charges on the consolidated statements of income. The revenue resulting from non-deposit investment accounts is included as a component of other operating income on the consolidated statements of income. 

Revenue from contracts with customers included in service charges was $901,000 and $1.4 million for the years ended September 30, 2020 and 2019, respectively.  Revenue from contracts with customers included in other operating income was $106,000 and $148,000 for the years ended September 30, 2020 and 2019, respectively.

For our contracts with customers, we satisfy our performance obligations each day as services are rendered.  For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third party service provider as services are rendered.

7. Other Real Estate Owned

Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its net cost or fair value less estimated selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.

The Company accounts for gains on sales of other real estate owned under ASU 2014-09, which uses a principles based methodology. As it pertains to the criteria for determining how a contract should be accounted for under the new guidance, judgment is required in evaluating if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized under the new guidance.

Operating expenses of holding real estate, net of related income, are charged against income as incurred. Losses on the disposition of real estate, including expenses incurred in connection with the disposition, are charged to operations.

8. Pension and Postretirement Plans

The Company sponsors qualified defined benefit pension plan and supplemental executive retirement plan (SERP). The qualified defined benefit pension plan is funded with trust assets invested in a diversified portfolio of debt and equity securities. Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. This involves extensive use of assumptions about inflation, investment returns, mortality, turnover, and discount rates. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plan could have an adverse impact on our cash flow. Changes in the key actuarial assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and other postretirement benefit plan. See Note M, “Pension Plan,” and Note N, “Non-Qualified Compensation Plan” for information on these plans and the assumptions used.

9. Income Taxes

The Company and its subsidiaries file consolidated federal and individual state income tax returns. Income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return.

The Company records income taxes on the basis of reported income using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

The Company follows the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 740, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

At September 30, 2020 and 2019, no significant income tax uncertainties have been included in the Company’s Consolidated Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties were recorded during the year ended September 30, 2020 and 2019. The tax years subject to examination by the taxing authorities are the years ended September 30, 2015 and forward.

10. Advertising Costs

The Company expenses advertising costs as incurred.

11. Earnings Per Share

Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. The weighted average common shares outstanding include shares held by the Magyar Bancorp, MHC and shares allocated to the Employee Stock Ownership Plan.

Diluted income per share is calculated by adjusting the weighted average common shares outstanding to reflect the potential dilution that could occur using the treasury stock method if securities or other contracts to issue common stock, such as stock options and unvested restricted stock, were exercised and converted into common stock. The resulting shares issued would share in the earnings of the Company. Shares issued and shares reacquired during the period are weighted for the portion of the period that they were outstanding. In periods of loss, dilution is not calculated and diluted loss per share is equal to basic loss per share. As there were no stock options of grants outstanding at September 30, 2020 or September 30, 2019, there is no calculated dilution to the Company’s earnings per share.

12. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) includes net income as well as certain other items which result in a change to equity during the period. The other items allocated to comprehensive income (loss), as well as the related income tax effects, for the years ended September 30, 2020 and 2019 were as follows:

	September 30,
	2020									2019
				Tax			Net of						Tax			Net of
	Before Tax			(Benefit)			Tax			Before Tax			(Benefit)			Tax
	Amount			Expense			Amount			Amount			Expense			Amount
	(In thousands)
Unrealized holding (losses) gains arising
during period on:
Available-for-sale investments	$	127		$	(38	)	$	89		$	933		$	(261	)	$	672
Less reclassification adjustment for:
Net gains realized on securities
available-for-sale(a) (b)		(68	)		19			(49	)		(117	)		33			(84	)
Defined benefit pension plan		(150	)		83			(67	)		(618	)		174			(444	)
Other comprehensive income (loss), net	$	(91	)	$	64		$	(27	)	$	198		$	(54	)	$	144

(a) Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of Operations

(b) Tax effect included in income tax expense in the accompanying Consolidated Statements of Operations  

The components of accumulated other comprehensive loss at September 30, 2020 and 2019 were as follows:

	September 30,
	2020			2019
	(In thousands)
Available-for-sale investments, net of tax	$	83		$	43
Defined benefit pension plan, net of tax		(1,440	)		(1,373	)
Total accumulated other comprehensive loss	$	(1,357	)	$	(1,330	)

13. Bank-Owned Life Insurance

The Company has purchased Bank-Owned Life Insurance policies (“BOLI”). BOLI involves the purchasing of life insurance by the Company on directors and executive officers. The proceeds are used to help defray the costs of non-qualified compensation plans. The Company is the owner and beneficiary of the policies. BOLI is recorded on the Consolidated Balance Sheets at its cash surrender value and changes in the cash surrender value are recorded in other income in the Consolidated Statement of Operations.

14. Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under commercial lines of credit. Such financial instruments are recorded when they are funded. The Company does not engage in the use of derivative financial instruments. See Note Q, “Financial Instruments With Off-Balance Risk.”

15. Segment Reporting

The Company acts as an independent, community, financial services provider, and offers traditional banking and related financial services to individual, business and government customers. The Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and home equity loans; and the provision of other financial services.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Company. As such, discrete financial information is not available and segment reporting would not be meaningful.

16. New Accounting Pronouncements

In connection with the preparation of quarterly and annual reports in accordance with the Securities and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, SEC Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on financial statements when they are adopted in the future.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those fiscal years. The Company currently expects to continue to qualify as a smaller reporting company, based upon the current SEC definition, and as a result, will likely be able to defer implementation of the new standard for a period of time. The Company did not early adopt as of January 1, 2020, but will continue to review factors that might indicate that the full deferral time period should not be used. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses, but the Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on its consolidated financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU removes the disclosures of 1) the amounts in accumulated other comprehensive income that the entity expects to recognize in net periodic benefit cost during the next fiscal year, 2) the amount and timing of plan assets expected to be returned to the employer and 3) certain related party disclosures. The ASU clarifies the disclosure requirements for the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets. The ASU adds disclosure requirements for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and for an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

ASU 2018-14 is effective for public business entities in fiscal years ending after December 15, 2020 (Beginning October 1, 2021 for the Company). Early adoption is permitted. The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

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STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement, Noncash Expense [Abstract]

STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

NOTE C – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

The Company follows FASB Accounting Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation, which covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.

Stock options generally vest over a five-year service period and expire ten years from issuance. The fair values of all option grants were estimated using the Black-Scholes option-pricing model. Management recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the vesting period of the awards. Once vested, these awards are irrevocable.

There were no grants, vested shares or forfeitures of non-vested restricted stock awards as of or during the years ended September 30, 2020 and 2019.

There were no stock option and stock award expenses included with compensation expense for the years ended September 30, 2020 and 2019.

The Company announced its second stock repurchase program of up to 5% of its publicly-held outstanding shares of common stock, or 129,924 shares, in November 2007. Through September 30, 2020, the Company had repurchased a total of 91,000 shares of its common stock at an average cost of $8.41 per share under this program. The Company repurchased 10,000 shares of its common stock at an average price of $9.03 during the twelve months ended September 30, 2020. No shares were repurchased during the twelve months ended September 30, 2019. Under the stock repurchase program, 38,924 shares of the 129,924 shares authorized remained available for repurchase as of September 30, 2020. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held 112,996 total treasury stock shares at September 30, 2020.

The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees who meet the eligibility requirements as defined in the plan in 2006. The ESOP trust purchased 217,863 shares of common stock in the open market using proceeds of a loan from the Company. The total cost of shares purchased by the ESOP trust was $2.3 million, reflecting an average cost per share of $10.58. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears a variable interest rate that adjusts annually to Prime Rate (4.75% at January 1, 2020) with principal and interest payable annually in equal installments over thirty years. The loan is secured by shares of the Company’s stock.

As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company accounts for its ESOP in accordance with FASB ASC Topic 718, “Employer’s Accounting for Employee Stock Ownership Plans.” As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. The Company's contribution expense for the ESOP was $126,000 and $149,000 for years ended September 30, 2020 and 2019, respectively.

The following table presents the components of the ESOP shares as of September 30, 2019:

Unreleased shares at September 30, 2019	27,202
Shares released for allocation during the year ended September 30, 2020	(12,445	)
Unreleased shares at September 30, 2020	14,757
Total released shares	203,106
Total ESOP shares	217,863

The aggregate fair value of the unreleased shares at September 30, 2020 was approximately $123,000.

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INVESTMENT SECURITIES

12 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

NOTE D - INVESTMENT SECURITIES

The amortized cost, gross unrealized gains or losses and fair value of the Company’s investment securities available-for-sale and held-to-maturity are as follows:

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	350	$	14	$	—		$	364
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,092		108		(6	)		9,194
Debt securities		5,000		3		—			5,003
Total securities available for sale	$	14,442	$	125	$	(6	)	$	14,561

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,453	$	11	$	(33	)	$	1,431
Mortgage-backed securities - commercial		775		—		—			775
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		20,456		697		(3	)		21,150
Debt securities		4,500		1		(16	)		4,485
Private label mortgage-backed securities - residential		259		—		(5	)		254
Corporate securities		3,000		—		(196	)		2,804
Total securities held to maturity	$	30,443	$	709	$	(253	)	$	30,899

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	480	$	15	$	—		$	495
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,663	$	80	$	(35	)	$	14,708
Debt securities		1,500		—		—			1,500
Total securities available-for-sale	$	16,643	$	95	$	(35	)	$	16,703

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	445	$	—	$	(54	)	$	391
Mortgage-backed securities - commercial		842		—		(6	)		836
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		22,363		276		(47	)		22,592
Debt securities		2,468		10		—			2,478
Private label mortgage-backed securities - residential		363		7		—			370
Corporate securities		3,000		—		(323	)		2,677
Total securities held-to-maturity	$	29,481	$	293	$	(430	)	$	29,344

The contractual maturities of mortgage-backed securities generally exceed 10 years; however, the effective lives are expected to be shorter due to anticipated prepayments. The maturities of the debt securities and certain information regarding to the mortgage-backed securities available-for-sale at September 30, 2020 are summarized in the following table:

	September 30, 2020
	(In thousands)
	Amortized		Fair
	Cost		Value
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		5,000		5,003
Due after 5 but within 10 years		—		—
Due after 10 years		—		—
Total debt securities		5,000		5,003
Mortgage-backed securities:
Residential(1)		9,442		9,558
Commercial		—		—
Total	$	14,442	$	14,561

⁽¹⁾ Available-for-sale mortgage-backed securities – residential include an amortized cost of $350,000 and a fair value of $364,000 for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $9.1 million and a fair value of $9.2 million. There were no residential mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises.

The maturities of the debt securities and certain information regarding to the mortgage-backed securities held to maturity at September 30, 2020 are summarized in the following table:

	September 30, 2020
	Amortized		Fair
	Cost		Value
	(In thousands)
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		4,500		4,486
Due after 5 but within 10 years		3,000		2,803
Due after 10 years		—		—
Total debt securities		7,500		7,289
Mortgage backed securities:
Residential(1)		22,168		22,835
Commercial(2)		775		775
Total	$	30,443	$	30,899

⁽¹⁾ Held-to-maturity mortgage-backed securities – residential include an amortized cost of $1.5 million and a fair value of $1.4 million for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $20.5 million and a fair value of $21.2 million. Also included are mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises with an amortized cost of $259,000 and a fair value of $254,000.

⁽²⁾ Held-to-maturity mortgage-backed securities – commercial include an amortized cost of $775,000 and a fair value of $775,000 for obligations of U.S. government agencies issued by the Small Business Administration.

There were $6.1 million in sales of securities from the available-for-sale portfolio during the year ended September 30, 2020 and $6.6 million in sales during the year ended September 30, 2019. There were no sales of securities from the held-to-maturity portfolio during the year ended September 30, 2020 and 2019. The net gain on sales of investment securities totaled $68,000 and $117,000 for the year ended September 30, 2020 and 2019, respectively.

As of September 30, 2020 and 2019, securities having an estimated fair value of approximately $22.6 million and $18.9 million, respectively, were pledged to secure public deposits.

Details of securities with unrealized losses at September 30, 2020 and 2019 are as follows:

			September 30, 2020
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		2	$	—	$	—		$	284	$	(33	)	$	284	$	(33	)
Mortgage-backed securities - commercial		1		—		—			775		—			775		—
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential		2		2,854		(3	)		533		(6	)		3,387		(9	)
Debt securities		2		2,484		(16	)		—		—			2,484		(16	)
Private label mortgage-backed securities residential		1		254		(5	)		—		—			254		(5	)
Corporate securities		1		—		—			2,804		(196	)		2,804		(196	)
Total		9	$	5,592	$	(24	)	$	4,396	$	(235	)	$	9,988	$	(259	)

			September 30, 2019
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities- residential		2	$	—	$	—		$	392	$	(54	)	$	392	$	(54	)
Mortgage-backed securities - commercial		1		—		—			836		(6	)		836		(6	)
Obligations of U.S. government-sponsored enterprises
Mortgage backed securities- residential		13		1,219		(4	)		14,429		(78	)		15,648		(82	)
Corporate securities		1		—		—			2,678		(323	)		2,678		(323	)
Total		17	$	1,219	$	(4	)	$	18,335	$	(461	)	$	19,554	$	(465	)

The investment securities listed above currently have fair values less than amortized cost and therefore contain unrealized losses. The Company evaluated these securities and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related to any company or industry specific event.

The Company anticipates full recovery of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery. Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities with impairment that is other than temporary as of September 30, 2020 and 2019.

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LOANS RECEIVABLE, NET

12 Months Ended

Sep. 30, 2020

Receivables [Abstract]

LOANS RECEIVABLE, NET

NOTE E - LOANS RECEIVABLE, NET

Loans receivable are comprised of the following:

	September 30,
	2020			2019
	(In thousands)
One-to four-family residential	$	210,360		$	190,415
Commercial real estate		248,134			232,544
Construction		28,242			28,451
Home equity lines of credit		19,373			17,832
Commercial business		100,993			48,769
Other		4,157			4,990
Total loans receivable		611,259			523,001
Net deferred loan costs		(1,749	)		104
Allowance for loan losses		(6,400	)		(4,888	)
Total loans receivable, net	$	603,110		$	518,217

Certain directors and executive officers of the Company have loans with the Bank. Such loans were made in the ordinary course of business at the Bank’s normal credit terms, including interest rate and collateralization, and do not represent more than a normal risk of collection. Total loans receivable from directors and executive officers, and affiliates thereof, were approximately $2.5 million and $2.9 million at September 30, 2020 and 2019, respectively. There were $400,000 and $502,000 in new loans or advances on existing lines of credit during the year ended September 30, 2020 and 2019, respectively. Total principal repayments were approximately $775,000 and $233,000 for the year ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and 2019, the Company was servicing loans for others amounting to approximately $42.7 million and $42.3 million, respectively. The Company held mortgage servicing rights in the amount of $12,000 and $26,000 at September 30, 2020 and 2019, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and foreclosure processing. Loan servicing income is recorded on the cash basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. In connection with loans serviced for others, the Company held borrowers’ escrow balances of approximately $61,000 and $78,000 at September 30, 2020 and 2019, respectively.

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens.  The commercial loan segment is further disaggregated into three classes: loans secured by multifamily structures, owner-occupied commercial structures, and non-owner occupied nonresidential properties.  The construction loan segment consists primarily of developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built.  Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan.  The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily of revolving lines of credit. The consumer loan segment consists primarily of stock-secured installment loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is 90 days or more past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. 

Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s current observable market price; or (c) the fair value of the collateral securing the loan, less anticipated selling and disposition costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods presented:

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2020	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	2,601	$	2,601	$	2,601
Commercial real estate		599		46		3,806		4,405		4,405
Construction		2,306		175		2,835		5,141		5,206
Commercial business		—		—		2,014		2,014		2,218
Total impaired loans	$	2,905	$	221	$	11,256	$	14,161	$	14,430

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2019	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	1,405	$	1,405	$	1,405
Commercial real estate		—		—		4,593		4,593		4,593
Construction		—		—		2,900		2,900		2,900
Commercial business		—		—		1,456		1,456		1,456
Total impaired loans	$	—	$	—	$	10,354	$	10,354	$	10,354

The average recorded investment in impaired loans was $11.7 million and $9.2 million for the years ended September 30, 2020 and 2019, respectively. The Company’s impaired loans at September 30, 2020 include $11.4 million in delinquent loans and $2.9 million in performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. During the years ended September 30, 2020 and 2019, interest income of $142,000 and $165,000, respectively, was recognized for TDR loans while no interest income was recognized for delinquent non-accrual loans.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system for the periods presented:

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2020
One-to four-family residential	$	208,658	$	—	$	1,702	$	—	$	210,360
Commercial real estate		242,003		2,623		3,508		—		248,134
Construction		23,101		—		5,141		—		28,242
Home equity lines of credit		19,373		—		—		—		19,373
Commercial business		98,967		178		1,848		—		100,993
Other		4,157		—		—		—		4,157
Total	$	596,259	$	2,801	$	12,199	$	—	$	611,259

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2019
One-to four-family residential	$	189,938	$	—	$	477	$	—	$	190,415
Commercial real estate		228,156		1,409		2,979		—		232,544
Construction		25,551		—		2,900		—		28,451
Home equity lines of credit		17,832		—		—		—		17,832
Commercial business		47,541		—		1,228		—		48,769
Other		4,990		—		—		—		4,990
Total	$	514,008	$	1,409	$	7,584	$	—	$	523,001

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans for the periods presented:

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2020
One-to four-family residential	$	209,455	$	—	$	—	$	905	$	905	$	905	$	210,360
Commercial real estate		245,029		—		886		2,219		3,105		2,219		248,134
Construction		23,101		—		—		5,141		5,141		5,141		28,242
Home equity lines of credit		19,373		—		—		—		—		—		19,373
Commercial business		99,397		—		129		1,467		1,596		1,467		100,993
Other		4,157		—		—		—		—		—		4,157
Total	$	600,512	$	—	$	1,015	$	9,732	$	10,747	$	9,732	$	611,259

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2019
One-to four-family residential	$	190,301	$	—	$	—	$	114	$	114	$	114	$	190,415
Commercial real estate		229,331		503		58		2,652		3,213		2,652		232,544
Construction		25,551		—		—		2,900		2,900		2,900		28,451
Home equity lines of credit		17,832		—		—		—		—		—		17,832
Commercial business		47,541		—		—		1,228		1,228		1,228		48,769
Other		4,990		—		—		—		—		—		4,990
Total	$	515,546	$	503	$	58	$	6,894	$	7,455	$	6,894	$	523,001

The amount of interest income not recognized on non-accrual loans was approximately $508,000 and $530,000 for the years ended September 30, 2020 and 2019, respectively. At September 30, 2020 and September 30, 2019, there were no commitments to lend additional funds to borrowers whose loans are classified as non-accrual.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of NPLs.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors.

The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over 5 historical years is used.

Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint. Management increased several of these factors during the year ended September 30, 2020 due to the higher risk of credit loss resulting from the COVID-19 pandemic and its ongoing impact on borrowers and economic conditions.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.

The following tables summarize the activity in the allowance for loan losses by loan category for the years ended September 30, 2020 and 2019:

	One-to Four-							Home Equity
	Family		Commercial					Lines of		Commercial
	Residential		Real Estate		Construction			Credit		Business			Other			Unallocated			Total
	(In  thousands)
Balance-September 30, 2019	$	731	$	2,066	$	511		$	138	$	1,184		$	8		$	250		$	4,888
Charge-offs		—		—		(65	)		—		(204	)		—			—			(269	)
Recoveries		11		5		—			—		99			—			—			115
Provision (credit)		293		1,161		226			41		(45	)		(7	)		(3	)		1,666
Balance-September 30, 2020	$	1,035	$	3,232	$	672		$	179	$	1,034		$	1		$	247		$	6,400

	One-to Four-								Home Equity
	Family			Commercial					Lines of		Commercial
	Residential			Real Estate			Construction		Credit		Business			Other			Unallocated		Total
	(In  thousands)
Balance-September 30, 2018	$	687		$	1,540		$	493	$	109	$	1,151		$	25		$	195	$	4,200
Charge-offs		—			(1	)		—		—		(100	)		—			—		(101	)
Recoveries		120			—			—		1		—			—			—		121
Provision (credit)		(76	)		527			18		28		133			(17	)		55		668
Balance-September 30, 2019	$	731		$	2,066		$	511	$	138	$	1,184		$	8		$	250	$	4,888

The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and September 30, 2019:

	One-to-Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(In  thousands)
Allowance for Loan Losses:
Balance - September 30, 2020	$	1,035	$	3,232	$	672	$	179	$	1,034	$	1	$	247	$	6,400
Individually evaluated
for impairment		—		46		175		—		—		—		—		221
Collectively evaluated
for impairment		1,035		3,186		497		179		1,034		1		247		6,179
Loans receivable:
Balance - September 30, 2020	$	210,360	$	248,134	$	28,242	$	19,373	$	100,993	$	4,157	$	—	$	611,259
Individually evaluated
for impairment		2,601		4,405		5,141		—		2,014		—		—		14,161
Collectively evaluated
for impairment		207,759		243,729		23,101		19,373		98,979		4,157		—		597,098

	One-to- Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(Dollars in  thousands)
Allowance for Loan Losses:
Balance - September 30, 2019	$	731	$	2,066	$	511	$	138	$	1,184	$	8	$	250	$	4,888
Individually evaluated
for impairment		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		731		2,066		511		138		1,184		8		250		4,888
Loans receivable:
Balance - September 30, 2019	$	190,415	$	232,544	$	28,451	$	17,832	$	48,769	$	4,990	$	—	$	523,001
Individually evaluated
for impairment		1,405		4,593		2,900		—		1,456		—		—		10,354
Collectively evaluated
for impairment		189,010		227,951		25,551		17,832		47,313		4,990		—		512,647

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

A TDR is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally included, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

A default on a troubled debt restructured loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred. There were no defaults of TDRs during the year ended September 30, 2020.

There was one new TDR loan during both the years ended September 30, 2020 and September 30, 2019. Both TDRs were performing in accordance with their restructured terms as September 30, 2020. The following tables summarize the TDRs during the years ended September 30, 2020 and 2019:

	Year Ended September 30, 2020
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
Commercial business		1	$	252	$	220
Total		1	$	252	$	220

	Year Ended September 30, 2019
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
One-to four-family residential		1	$	260	$	363
Total		1	$	260	$	363

Magyar Bank offered loan payment deferrals to borrowers affected by COVID-19. Loan payment deferral requests were considered on a case-by-case basis and were approved for up to a six month period for principal and interest payments or for interest only payments, depending on the borrower’s circumstances. As of September 30, 2020, we had modified 283 loans aggregating $150.7 million. Details with respect to actual loan modifications are as follows:

Type of Loan September 30, 2020	Number of Loans		Balance
			(In  thousands)
One- to four-family residential real estate (1)		94	$	24,573
Commercial real estate		145		115,358
Construction		4		2,630
Home equity lines of credit		8		1,238
Commercial business		32		6,892
Total		283	$	150,691
(1) Includes home equity loans.

Through November 30, 2020, 270 loans totaling $141.4 million had resumed making their contractually scheduled payments, 11 loans totaling $7.8 million remained in deferral status, and 2 loans totaling $1.5 million were delinquent. Of the two delinquent loans, one loan totaling $1.4 million was delinquent 90 days at September 30, 2020 and one loan totaling $113,000 was delinquent 30 days at September 30, 2020.

Total loans pledged as collateral against Federal Home Loan Bank of New York borrowings were $184.1 million and $176.9 million as of September 30, 2020 and 2019, respectively.

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ACCRUED INTEREST RECEIVABLE

12 Months Ended

Sep. 30, 2020

Interest Receivable and Other Assets [Abstract]

ACCRUED INTEREST RECEIVABLE

NOTE F - ACCRUED INTEREST RECEIVABLE

The following is a summary of accrued interest receivable:

	September 30,
	2020		2019
	(In thousands)
Loans	$	3,943	$	2,005
Investment securities		22		47
Mortgage-backed securities		65		81
Total accrued interest receivable	$	4,030	$	2,133

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PREMISES AND EQUIPMENT

12 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

NOTE G - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

	Estimated	September 30,
	Useful Lives	2020			2019
		(In thousands)
Land	Indefinite	$	3,811		$	3,811
Buildings and improvements	10-40 years		21,622			22,524
Furniture, fixtures and equipment	5-10  years		3,407			3,300
			28,840			29,635
Less accumulated depreciation			(14,094	)		(13,463	)
Premises and equipment, net		$	14,746		$	16,172

For the years ended September 30, 2020 and 2019, depreciation expense included in occupancy expense amounted to approximately $854,000 and $871,000, respectively.

Hungaria Urban Renewal, LLC was formed in 2002 and its sole purpose was to purchase the land and construct the office building for which the Company is the primary tenant. The Bank owns a 100% interest in Hungaria Urban Renewal, LLC, which has no other business other than owning the Bank’s main office site. At September 30, 2020, Hungaria Urban Renewal, LLC accounted for approximately $3.1 million and $8.6 million of land and buildings, net of depreciation, respectively. At September 30, 2019, Hungaria Urban Renewal, LLC accounted for approximately $3.1 million and $9.0 million of land and buildings, net of depreciation, respectively.

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OTHER REAL ESTATE OWNED

12 Months Ended

Sep. 30, 2020

OTHER REAL ESTATE OWNED [Abstract].

OTHER REAL ESTATE OWNED

NOTE H - OTHER REAL ESTATE OWNED

The Company held $2.6 million of real estate owned properties at September 30, 2020 and $7.5 million at September 30, 2019. The Company incurred write-downs totaling $371,000 and $212,000 on these properties for the years ended September 30, 2020 and 2019; these amounts were carried as valuation allowances, unless the properties were sold, at September 30, 2020 and 2019, respectively. Further declines in real estate values may result in increased foreclosed real estate expense in the future. Routine holding costs are charged to expense as incurred and improvements to real estate owned that enhance the value of the real estate are capitalized.

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DEPOSITS

12 Months Ended

Sep. 30, 2020

Deposits [Abstract]

DEPOSITS

NOTE I - DEPOSITS

A summary of deposits by type of account follows:

	September 30,
	2020		2019
	(In thousands)
Demand accounts	$	163,562	$	106,422
Savings accounts		74,923		70,598
NOW accounts		65,447		48,164
Money market accounts		188,023		188,115
Certificate of deposit		110,650		100,016
Retirement accounts		15,725		16,760
Total deposits	$	618,330	$	530,075

The current FDIC insurance limit on bank deposit accounts is $250,000. The aggregate amount of deposit accounts with a minimum denomination of $250,000 was approximately $365.6 million at September 30, 2020 compared with $298.8 million at September 30, 2019. The aggregate amount of certificate deposits, including individual retirement accounts with balance of $250,000 or more was $45.6 million at September 30, 2020 compared with $35.0 million at September 30, 2019.

At September 30, 2020, certificates of deposit (including retirement accounts and brokered certificate deposit accounts) have contractual maturities as follows (in thousands):

Year Ending September 30,
2021	$	79,120
2022		26,209
2023		8,738
2024		6,377
2025 and after		5,931
Total	$	126,375

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BORROWINGS

12 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

BORROWINGS

NOTE J - BORROWINGS

1. Federal Home Loan Bank of New York Advances

Long term Federal Home Loan Bank of New York (“FHLBNY”) advances at September 30, 2020 and September 30, 2019 totaled approximately $30.5 million and $36.2 million, respectively. The weighted average interest rate on advances outstanding at September 30, 2020 and 2019 were 2.09% and 2.26%, respectively. The advances were collateralized by unencumbered qualified assets consisting of one-to-four family residential and commercial real estate mortgage loans. Advances are made pursuant to several different credit programs offered from time to time by the FHLBNY.

Long term FHLBNY advances as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	7,130
2022		10,731
2023		4,741
2024		4,384
2025		3,500
Thereafter		—
Total	$	30,486

Additionally, the Company has established an Overnight Line of Credit arrangement with the FHLBNY. The total amount available under the line of credit is based on the amount of eligible collateral pledged to the FHLBNY. At September 30, 2020 and 2019, the Company had available credit from the FHLBNY totaling $61.3 million and $76.7 million, respectively. Information concerning short-term borrowings with the FHLBNY is summarized as follows:

	September 30,
	2020		2019
	(Dollars in thousands)
Balance at end of year	$	—	$	—
Weighted average balance during the year	$	—	$	743
Maximum month-end balance during the year	$	—	$	16,800
Average interest rate during the year		—		2.45%

2. Federal Reserve Bank of New York Advances

The company borrowed $36.9 million in Paycheck Protection Program Liquidity Facility advances from the Federal Reserve Bank of New York (“FRBNY”) during the year ended September 30, 2020. The weighted average interest rate on advances outstanding at September 30, 2020 was 0.35%. The advances were collateralized by Paycheck Protection Program loans. The advances are required to be repaid as PPP loans pledged as collateral are repaid or forgiven by the SBA.

PPPLF advances from the FRBNY as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	—
2022		36,924
2023		—
2024		—
2025		—
Thereafter		—
Total	$	36,924

3. Securities Sold Under Reverse Repurchase Agreements

Qualifying repurchase agreements are treated as financings and are reflected as a liability in the Consolidated Balance Sheets. The Company did not have repurchase agreements outstanding at September 30, 2020 and September 30, 2019.

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SERVICING POLICY

12 Months Ended

Sep. 30, 2020

Transfers and Servicing [Abstract]

SERVICING POLICY

NOTE K – SERVICING POLICY

The Company originates and sells loans receivable secured by one-to four-family residential properties and commercial business loans guaranteed by the Small Business Administration (the “SBA”). The Company has sold loans on a servicing retained basis and on a servicing released basis. Loans sold with servicing retained and servicing released during the year ended September 30, 2020 were $3.9 million and $0, respectively. Loans sold with servicing retained and servicing released during the year ended September 30, 2019 were $2.9 million and $0, respectively. The Company accounts for sales in accordance with ASC 860, Transfers and Servicing. Upon sale, the receivables are removed from the balance sheet, mortgage servicing rights are recorded as an asset for servicing rights retained, and a gain on sale, if applicable, is recognized for the difference between the carrying value of the receivables and the sales proceeds, net of origination costs. 

Gains on sales of loans, representing the difference between the total sales price received for the loans and the allocated cost of the loans, are recognized when mortgage loans are sold and delivered to the purchasers. Loans are accounted for as sold when control of the mortgage is surrendered. Control over the mortgage loans is deemed surrendered when (1) the mortgage loans have been isolated from the Company, (2) the buyer has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the mortgage loans and (3) the Company does not maintain effective control over the mortgage loans through either (a) an agreement that entitles and obligates the Company to repurchase or redeem the mortgage loans before maturity, or (b) the ability to unilaterally cause the buyer to return specific mortgage loans.

The Company services one-to-four family residential mortgage loans for investors in the secondary mortgage market, which are not included in the Consolidated Balance Sheets. The Company’s fee is a percentage of the principal balance and is recognized as income when received. At September 30, 2020 and 2019, the Company was servicing such sold loans in the amount of $5.2 million and $7.2 million, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues and are included in other assets on the Consolidated Balance Sheets. Activity in mortgage servicing rights during the years ended September 30, 2020 and 2019 are summarized as follows:

	September 30,
	2020			2019
	(In thousands)
Beginning balance	$	26		$	45
Origination of mortgage servicing rights		—			—
Amortization		(14	)		(19	)
Ending balance	$	12		$	26

Mortgage servicing rights are carried at the lower of amortized cost or fair value. Fair values are estimated using discounted cash flows based on a current market interest rate.

The Company also services the SBA guaranteed portion of commercial business loans sold to investors in the secondary market, which are not included in the Consolidated Balance Sheets.  The Company’s fee is a percentage of the principal balance and is recognized as income when received. At September 30, 2020 and 2019, the Company was servicing SBA loans sold in the amount of $22.2 million and $24.6 million, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans.

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INCOME TAXES

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE L - INCOME TAXES

The Company’s income tax expense is comprised of the following components for the years ended September 30, 2020 and 2019:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at the statutory federal tax rate of 21%
for the year ended September 30, 2020 and 2019, respectively	$	653		$	895
State tax expense		323			397
Other		(55	)		(27	)
Income tax expense	$	921		$	1,265

A reconciliation of income tax at the statutory tax rate to the effective income tax expense for the years ended September 30, 2020 and 2019 is as follows:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at statutory rate	$	653		$	895
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit		323			397
Tax-exempt income, net		(68	)		(64	)
Nondeductible expenses		18			26
Employee stock ownership plan		(5	)		2
Other, net		—			9
Total income tax expense	$	921		$	1,265

The major sources of temporary differences and their deferred tax effect at September 30, 2020 and 2019 are as follows:

	September 30,
	2020			2019
	(In thousands)
Allowance for loan losses	$	1,799		$	1,374
Deferred loan fees		731			76
Unrealized loss, minimum pension liability		620			537
OREO		73			424
Straight line rent		110			118
Gross deferred tax asset		3,333			2,529
Depreciation		(872	)		(931	)
Discount accretion on investments		(61	)		(89	)
Employee benefits		(37	)		(107	)
Net unrealized gain, investment securities available-for-sale		—			(17	)
Mortgage servicing rights		(3	)		(7	)
Gross deferred tax liability		(973	)		(1,151	)
Net deferred tax asset		2,360			1,378

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and carry forwards are available.

There were no valuation allowances for the year ended September 30, 2020 and 2019. The Company has considered future market growth, forecasted earnings, future taxable income, feasible and permissible tax planning strategies in determining the realizability of deferred tax assets. If the Company was to determine that it would not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made.

On July 1, 2018, the State of New Jersey's Assembly signed into law a new bill, effective January 1, 2018, that imposed a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million. The surtax was set at a rate of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and at a rate of 1.5% for years beginning on or after January 1, 2020, through December 31, 2021. On September 29, 2020, the State of New Jersey's Assembly repealed the scheduled reduction in surtax and extended the temporary 2.5% surtax rate through December 31, 2023. Accordingly, the Company is using an 11.5% State tax rate for the calculation of its State income tax expense the year ended September 30, 2020.

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PENSION PLAN

12 Months Ended

Sep. 30, 2020

Retirement Benefits [Abstract]

PENSION PLAN

NOTE M - PENSION PLAN

The Company had a noncontributory defined benefit pension plan (the “Plan”) covering all eligible employees. On January 26, 2006, the Plan was frozen and amended to eliminate future benefit accruals after February 15, 2006.

Plan assets are invested in six diversified investment funds of the Pentegra Retirement Trust (the “Trust”), a no load series open-ended mutual fund. The Trust has been given discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus plan liabilities, as governed by the Trust’s Statement of Investment Objectives and Guidelines. The long-term investment objective is to be invested 65% in equity securities (equity mutual funds) and 35% in debt securities (bond mutual funds). Asset rebalancing is performed at least annually, with interim adjustments made when the investment mix varies more than 5% from the target (i.e., a 10% target range). Risk/volatility is further managed by the distinct investment objectives of each of the Trust funds and the diversification within each fund.

The following table sets forth the Plan’s funded status and amounts recognized in the Company’s Consolidated Balance Sheets at September 30, 2020 and September 30, 2019.

	September 30,
	2020			2019
	(In thousands)
Actuarial present value of benefit obligations	$	5,227		$	4,990
Change in benefit obligations
Projected benefit obligation, beginning	$	4,990		$	4,390
Interest cost		158			182
Actuarial (gain) loss		278			614
Annuity payments and lump sum distributions		(199	)		(196	)
Projected benefit obligation, end	$	5,227		$	4,990
Change in plan assets
Fair value of assets, beginning	$	3,581		$	3,403
Actual return on plan assets		172			124
Employer contributions		25			250
Annuity payments and lump sum distributions		(199	)		(196	)
Fair value of assets, end	$	3,579		$	3,581
Funded status included with other liabilities	$	(1,648	)	$	(1,409	)

Net pension cost for the years ended September 30, 2020 and 2019 included the following components:

	September 30,
	2020			2019
	(In thousands)
Service cost benefits earned during the year	$	—		$	—
Interest cost on projected benefit obligation		158			182
Expected return on plan assets		(225	)		(233	)
Amortization of unrecognized net loss		181			105
Net pension cost	$	114		$	54

For the year ended September 30, 2020 and 2019, the weighted average discount rate used in determining the actuarial net periodic pension cost was 3.25% and 4.25%, respectively. For the year ended September 30, 2020 and 2019, the weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 2.75% and 3.25%, respectively.

The long-term rate-of-return-on-assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of asset classes. Equities and fixed income securities were assumed to earn rates of return in the ranges of 6-8% and 3-5%, respectively, with an assumed long-term inflation rate of 2.5% reflected within these ranges for the year ended September 30, 2020. When these overall return expectations are applied to the plan’s target allocation, the result is an expected rate of return of 5.0% to 7.0%. Accordingly, the expected long-term rate of return on assets were 6.25% for 2021 and 6.50% for 2020.

Current Asset Allocation

The Plan’s weighted-average asset allocations at September 30, 2020 and 2019, by asset category are as follows:

	September 30,
	2020		2019
Equity securities		64%		61%
Debt securities (bond mutual funds)		35%		36%
Other (money market fund)		1%		3%
Total		100%		100%

The target asset allocation set for the assets of the Plan are in equity securities ranging from 40 percent to 70 percent and in debt securities ranging from 30 percent to 60 percent. In general, the Plan assets are investment securities that are well-diversified in terms of industry, capitalization and asset class. The Plan assets are mostly a mix of mutual funds indexed to the performance of Fortune 500 U.S. companies, debt securities held in bond funds, domestic and foreign common equity funds, and a money market fund. The Plan’s exposure to a concentration of credit risk is limited by the diversification of the investments into various investment options with multiple asset managers.

Expected Contributions

For the fiscal year ending September 30, 2021, the Company expects to contribute $0 to the Plan.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid as follows (in thousands):

October 1, 2020 through September 30, 2021	$	225
October 1, 2021 through September 30, 2022		226
October 1, 2022 through September 30, 2023		230
October 1, 2023 through September 30, 2024		246
October 1, 2024 through September 30, 2025		245
October 1, 2025 through September 30, 2030		1,286
Total	$	2,458

Included in the funded status of the Plan at September 30, 2020 and 2019, are actuarial losses of $2,060,000 and $1,910,000, respectively. These amounts are included, net of related income tax effects of $620,000 and $537,000, respectively, in the accumulated other comprehensive loss component of stockholders’ equity. During the year ending September 30, 2021, approximately $205,000 of the actuarial losses is expected to be amortized into net periodic pension expense.

The following table presents the Plan assets that are measured at fair value on a recurring basis by level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note R for further detail regarding fair value hierarchy.

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2020
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	468	$	468	$	—	$	—
Large-Cap Core		576		576		—		—
Mid-Cap Core		220		220		—		—
Small-Cap Core		196		196		—		—
Non-U.S. Core		833		833		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,241		1,241		—		—
Cash Equivalents
Money Market		45		45		—		—
Total Investment	$	3,579	$	3,579	$	—	$	—

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2019
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	484	$	484	$	—	$	—
Large-Cap Core		500		500		—		—
Mid-Cap Core		205		205		—		—
Small-Cap Core		193		193		—		—
Non-U.S. Core		802		802		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,304		1,304		—		—
Cash Equivalents
Money Market		93		93		—		—
Total Investment	$	3,581	$	3,581	$	—	$	—

Equity and debt securities are reported at fair value in the table above utilizing exchange quoted prices in active markets for identical instruments (Level 1 inputs).

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NONQUALIFIED COMPENSATION PLAN

12 Months Ended

Sep. 30, 2020

Postemployment Benefits [Abstract]

NONQUALIFIED COMPENSATION PLAN

NOTE N - NONQUALIFIED COMPENSATION PLAN

The Company maintains a Supplemental Executive Retirement Plan (“SERP”) for the benefit of its senior officers. In addition, the Company also adopted voluntary Deferred Income and Emeritus Plans on behalf of its directors and those directors elected by the Board as “Director Emeritus.” The SERP provides the Company with the opportunity to supplement the retirement income of selected officers to achieve equitable wage replacement at retirement while the Deferred Income Plan provides participating directors with an opportunity to defer all or a portion of their fees into a tax deferred accumulation account for future retirement. The Director Emeritus Plan enables the Company to reward its directors for longevity of service in consideration of their availability and consultation. The SERP is based upon achieving a total retirement benefit equal to a percentage of the participants’ final annual salary.

In 2001, the Company adopted a New Director Emeritus Plan (the “New Plan”), which supplemented the prior Director Emeritus Plans. Under the New Plan, the directors will be entitled to a benefit upon attainment of his/her benefit age. The directors will receive an annual amount in monthly installments based on his/her total Board and Committee fees in the twelve months prior to attainment of his/her benefit age. The amount will be ten percent (10%) plus two and one-half percent (2 1/2%) for each year of service as a Director, with a minimum of fifty percent (50%), provided the Director has served for at least five (5) years, and a maximum of sixty percent (60%). The maximum benefit increases for any Director serving as Chairman of the Board to seventy-five percent (75%).

The Company funds the plans through a modified endowment contract. Income recorded for the plans represents life insurance income as recorded based on the projected increases in cash surrender values of life insurance policies. As of September 30, 2020 and 2019, the Life Insurance Contracts had cash surrender values of approximately $13,971,000 and $13,647,000, respectively.

The Company is recording benefit costs so that the cost of each participant’s retirement benefits is being expensed and accrued over the participant’s active employment so as to result in a liability at retirement date equal to the present value of the benefits expected to be provided.

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401(K) EMPLOYEE CONTRIBUTION PLAN

12 Months Ended

Sep. 30, 2020

Deferred Compensation Arrangements [Abstract]

401(K) EMPLOYEE CONTRIBUTION PLAN

NOTE O - 401(K) EMPLOYEE CONTRIBUTION PLAN

The Company has a defined contribution 401(k) plan covering all employees, as defined under the plan document. Employees may contribute to the plan, as defined under the plan document, and the Company can make discretionary contributions. The Company contributed $175,000 to the plan for the years ended September 30, 2020 and 2019, and is included in compensation and employee benefits in the accompanying Consolidated Statements of Operations.

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COMMITMENTS

12 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

NOTE P - COMMITMENTS

1.       Lease Commitments

Approximate future minimum payments under non-cancelable operating leases are due as follows for the years indicated (in thousands):

September 30, 2021	$	705
September 30, 2022		592
September 30, 2023		599
September 30, 2024		602
September 30, 2025		378
Thereafter		1,208
Total	$	4,084

The Company adopted Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842), on October 1, 2019. Topic 842 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset, measured at the present value of the future minimum lease payments, at the lease commencement date. The Company adopted this guidance on October 1, 2019, electing the modified retrospective transition approach method that does not adjust previous periods. The Company also elected not to include short-term leases (i.e., leases with initial term of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition as provided for in the guidance.

The Company has operating leases for five branch locations. Our leases have remaining lease terms of up to 11 years, some of which include options to extend the leases for up to 10 additional years. Operating leases are recorded as ROU assets and lease liabilities and are included within Other assets and Accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets.

Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement base on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The Company recorded a $3.8 million operating lease right-of-use asset and operating lease liability beginning October 1, 2019. The incremental borrowing rate used by the Company to value its operating leases was based on the interpolated term advance rate available from the Federal Home Loan Bank of New York, based on the remaining lease term as of October 1, 2019.

At September 30, 2020, the Company’s operating lease right-of-use assets and operating lease liabilities totaled $3.2 million and $3.6 million, respectively.

The following table presents the balance sheet information related to our leases:

	September 30, 2020
	(Dollars in thousands)
Operating lease right-of-use asset	$	3,240
Operating lease liabilities	$	3,631
Weighted average remaining lease term in years		7.5
Weighted average discount rate		2.2%

The following table summarizes the maturity of our remaining lease liabilities by year:

	September 30, 2020
	(In thousands)
For the Year Ending:
2021	$	705
2022		595
2023		602
2024		602
2025		378
2026 and thereafter		1,150
Total lease payments		4,032
Less imputed interest		(401	)
Present value of lease liabilities	$	3,631

Total rental expense, included in occupancy expense, was approximately $802,000 and $791,000 for the years ended September 30, 2020 and 2019, respectively.

2.       Contingencies

The Company and its subsidiaries, from time to time, are a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

12 Months Ended

Sep. 30, 2020

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK [Abstract]

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

NOTE Q - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company may use derivative financial instruments, such as interest rate floors and collars, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. As of September 30, 2020 and 2019, the Company did not hold any interest rate floors or collars.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other parties to the financial instrument for commitments to extend credits is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

At September 30, 2020 and 2019, the Company had outstanding commitments (substantially all of which expire within one year) to originate one-to four-family residential loans, construction loans, commercial real estate loans, commercial business loans and consumer loans. These commitments were comprised of fixed and variable rate loans.

	September 30,
	2020		2019
	(In thousands)
Financial instruments whose contract amounts
represent credit risk
Letters of credit	$	1,041	$	1,315
Unused lines of credit		78,632		56,405
Fixed rate loan commitments		5,240		3,362
Variable rate loan commitments		15,864		12,141
Total	$	100,777	$	73,223

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FAIR VALUE DISCLOSURES

12 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

NOTE R - FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company’s securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and other real estate owned, or OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

In accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1-	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2-	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3-	Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation

techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.

Securities available-for-sale

The Company’s available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S. government and government-sponsored enterprise obligations, municipal bonds, and mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities.

The following table provides the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	364	$	—	$	364	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,194		—		9,194		—
Debt securities		5,003		—		5,003		—
Total securities available for sale	$	14,561	$	—	$	14,561	$	—

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	495	$	—	$	495	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,708	$	—	$	14,708	$	—
Debt securities		1,500		—		1,500		—
Total securities available for sale	$	16,703	$	—	$	16,703	$	—

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Mortgage Servicing Rights

Mortgage Servicing Rights (MSR’s) are carried at the lower of amortized cost or estimated fair value. The estimated fair value of MSRs is determined through a calculation of future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3. No valuation write-downs were made to MSR’s during the years ended September 30, 2020 and 2019.

Impaired Loans

Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate; 2) the asset’s observable market price; or 3) the fair value of the collateral if the asset is collateral dependent. The regulatory agencies require this method for loans from which repayment is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling and disposition costs. Fair value is estimated through current appraisals, and adjusted as necessary, by management, to reflect current market conditions and, as such, are generally classified as Level 3.

Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Bank’s credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. However, the Company also obtains updated appraisals on performing construction loans that are approaching their maturity date to determine whether or not the fair value of the collateral securing the loan remains sufficient to cover the loan amount prior to considering an extension. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss.

Other Real Estate Owned

Other real estate owned is carried at lower of cost or estimated fair value less disposal costs. The estimated fair value of the real estate is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions. As such, other real estate owned is generally classified as Level 3. Valuation write-downs totaling $371,000 were made to five properties held as other real estate owned during the year ended September 30, 2020. The properties were written down based on an updated appraisal of the real estate.

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	11,874	$	—	$	—	$	11,874
Other real estate owned		2,594		—		—		2,594
Total	$	14,468	$	—	$	—	$	14,468

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	6,835	$	—	$	—	$	6,835
Other real estate owned		7,528		—		—		7,528
Total	$	14,363	$	—	$	—	$	14,363

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2020	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$   11,874	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -50.0% (-11.6%)
Other real estate owned	$     2,594	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -27.4% (-14.7%)

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2019	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$     6,835	Appraisal of collateral (1)	Appraisal adjustments (2)	-1.9% to -67.2% (-25.0%)
Other real estate owned	$     7,528	Appraisal of collateral (1)	Liquidation expenses (2)	-9.2% to -48.5% (-19.4%)

(1) Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized cost as of September 30, 2020 and September 30, 2019. This table excludes financial instruments for which the carrying amount approximates fair value, which includes cash and cash equivalents, FHLB stock, bank owned life insurance, accrued interest receivable, interest and non-interest bearing demand, savings deposits, and accrued interest payable. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
September 30, 2020
Financial instruments - assets
Investment securities held-to-maturity	$	30,443	$	30,899	$	—	$	30,899	$	—
Loans		603,110		617,418		—		—		617,418
Financial instruments - liabilities
Certificates of deposit		126,375		128,590		—		128,590		—
Borrowings		67,410		68,386		—		68,386		—
September 30, 2019
Financial instruments - assets
Investment securities held-to-maturity	$	29,481	$	29,344	$	—	$	29,344	$	—
Loans		518,217		527,088		—		—		527,088
Financial instruments - liabilities
Certificates of deposit		116,776		117,730		—		117,730		—
Borrowings		36,189		36,583		—		36,583		—

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REGULATORY CAPITAL

12 Months Ended

Sep. 30, 2020

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

REGULATORY CAPITAL

NOTE S - REGULATORY CAPITAL

The Company and Bank are required to maintain minimum amounts of capital to total “risk-weighted” assets, as defined by the banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The federal banking agencies substantially amended the regulatory risk-based capital rules applicable to the Bank in 2015. The amendments implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The rule includes a minimum common equity Tier 1 capital (“CET1”) to risk-weighted assets ratio of 4.5% of risk-weighted assets, a minimum Tier 1 capital to risk-weighted assets of 6.0% and a minimum leverage ratio of 4.0%. The required minimum ratio of total capital to risk-weighted assets is 8.0%.

The amended rules also established a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and resulted in the following phased-in minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations established a maximum percentage of eligible retained income that could be utilized for such actions.

As of September 30, 2020, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

The following tables set forth the Company’s and the Bank’s actual and required capital levels under those measures:

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2020		adequacy purposes	action provisions
	Company	Bank	September 30, 2020	Bank
Tier 1 leverage ratio	7.84%	8.30%	≥  4.00%	≥   5.00%
CET1	11.84%	11.93%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.93%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	13.09%	13.18%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2019		adequacy purposes	action provisions
	Company	Bank	September 30, 2019	Bank
Tier 1 leverage ratio	8.94%	9.03%	≥  4.00%	≥   5.00%
CET1	11.84%	11.96%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.96%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	12.88%	12.99%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Financial Statement Presentation

1. Basis of Financial Statement Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“US GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and its wholly-owned subsidiaries Magyar Investment Company, Magyar Service Corporation, and Hungaria Urban Renewal, LLC. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

The Company has evaluated subsequent events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2020, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were available to be issued.

In preparing financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimates that are particularly susceptible to significant change in the near term relate to the allowance for loan losses and the deferred tax asset. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses.

The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

Cash and Cash Equivalents

2. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, time deposits with original maturities less than three months and overnight deposits.

Investment Securities

3. Investment Securities

The Company classifies its investment securities into one of three portfolios: held to maturity, available for sale or trading. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt securities not classified as either trading securities or as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive income (“AOCI”) component of stockholders’ equity. Equity securities, with certain exceptions, are measured at fair value with changes in fair value recognized in net income.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary” in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available for sale, held to maturity or trading. Temporary impairments on “available for sale” securities are recognized, on a tax-effected basis, through AOCI with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes. Conversely, the Company does not adjust the carrying value of “held to maturity” securities for temporary impairments, although information concerning the amount and duration of impairments on held to maturity securities is generally disclosed in periodic consolidated financial statements. The carrying value of securities held in a trading portfolio is adjusted to their fair value through earnings on a daily basis. However, the Company maintained no securities in trading portfolios at or during the periods presented in these consolidated financial statements. 

The Company accounts for other-than-temporary impairments based upon several considerations. First, other-than-temporary impairments on securities that the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to the full recovery of the their fair value to a level equal to their amortized cost, are recognized in operations. If neither of these criteria apply, then the other-than-temporary impairment is separated into credit-related and noncredit-related components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt securities are recognized, net of deferred taxes, in AOCI.

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to purchase and hold restricted stock of its district FHLB according to a predetermined formula. This stock is restricted in that it may only be sold to the FHLB and all sales must be at par. Accordingly, the FHLB restricted stock is carried at cost, less any applicable impairment charges.

Premiums and discounts on all securities are amortized or accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments on mortgage-backed securities. Gain or loss on sales of securities is recognized on the specific identification method.

Loans and Allowance for Loan Losses

4. Loans and Allowance for Loan Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, adjusted for net deferred loan fees and costs, and reduced by an allowance for loan losses. Interest on loans is accrued and credited to operations based upon the principal amounts outstanding. The allowance for loan losses is established through a provision for possible loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Income recognition of interest is discontinued when, in the opinion of management, the collectability of such interest becomes doubtful. A loan is generally classified as non-accrual when the scheduled payment(s) due on the loan is delinquent for more than three months. Loan origination fees and certain direct origination costs are deferred and amortized over the life of the related loans as an adjustment to the yield on loans receivable using the effective interest method.

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse.  Confirmation of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within the portfolio.  Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis.

The allowance for loan losses is maintained at an amount management deems adequate to cover estimated losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrowers’ ability to repay and repayment performance, and estimated collateral values. In the opinion of management, the present allowance is adequate to absorb reasonable, foreseeable loan losses. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management’s determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Charge-offs to the allowance are made when the loan is transferred to other real estate owned or other determination of a confirmed loss. Recoveries on loans previously charged off are also recorded through the allowance.

A loan is considered impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate or as a practical expedient, at the loan’s current observable market price, or the fair value of the collateral if the loan is collateral dependent. The amount by which the recorded investment of an impaired loan exceeds the measurement value is recognized by creating a valuation allowance through a charge to the provision for loan losses. Impairment criteria generally do not apply to those smaller-balance homogeneous loans that are collectively evaluated for impairment which, for the Company, includes one- to four-family first mortgage loans and consumer loans, other than those modified in a troubled debt restructuring.

The Company records cash receipts on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges unless specifically directed by the Bankruptcy Court to apply payments otherwise. The Company may continue to recognize interest income on impaired loans where there is no confirmed loss.

Premises and Equipment

5. Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation, and include capitalized expenditures for new facilities, major betterments and renewals. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method based upon the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes. Leasehold improvements are depreciated using the straight-line method based upon the initial term of the lease.

The Company accounts for the impairment of long-lived assets in accordance with US GAAP, which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale. The Company had no impaired long-lived assets at September 30, 2020 and 2019.

Revenue recognition

6. Revenue recognition

The Company recognizes revenue in the consolidated statements of income as it is earned and when collectability is reasonably assured. The primary source of revenue is interest income from interest earning assets, which is recognized on the accrual basis of accounting using the effective interest method. The recognition of revenues from interest earning assets is based upon formulas from underlying loan agreements, securities contracts, or other similar contracts. Non-interest income is recognized on the accrual basis of accounting as services are provided or as transactions occur. Non-interest income includes earnings on bank-owned life insurance, deposit accounts, merchant services, ATM and debit card fees, mortgage banking activities, and other miscellaneous services and transactions.

The Company’s contracts with customers in the scope of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” are contracts for deposit accounts and contracts for non-deposit investment accounts through a third party service provider.  Both types of contracts result in non-interest income being recognized. The revenue resulting from deposit accounts, which includes fees such as insufficient funds fees, wire transfer fees and out-of-network ATM transaction fees, is included as a component of service charges on the consolidated statements of income. The revenue resulting from non-deposit investment accounts is included as a component of other operating income on the consolidated statements of income. 

Revenue from contracts with customers included in service charges was $901,000 and $1.4 million for the years ended September 30, 2020 and 2019, respectively.  Revenue from contracts with customers included in other operating income was $106,000 and $148,000 for the years ended September 30, 2020 and 2019, respectively.

For our contracts with customers, we satisfy our performance obligations each day as services are rendered.  For our deposit account revenue, we receive payment on a daily basis as services are rendered and for our non-deposit investment account revenue, we receive payment on a monthly basis from our third party service provider as services are rendered.

Other Real Estate Owned

7. Other Real Estate Owned

Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its net cost or fair value less estimated selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.

The Company accounts for gains on sales of other real estate owned under ASU 2014-09, which uses a principles based methodology. As it pertains to the criteria for determining how a contract should be accounted for under the new guidance, judgment is required in evaluating if: (a) a commitment on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be recognized under the new guidance.

Operating expenses of holding real estate, net of related income, are charged against income as incurred. Losses on the disposition of real estate, including expenses incurred in connection with the disposition, are charged to operations.

Pension and Postretirement Plans

8. Pension and Postretirement Plans

The Company sponsors qualified defined benefit pension plan and supplemental executive retirement plan (SERP). The qualified defined benefit pension plan is funded with trust assets invested in a diversified portfolio of debt and equity securities. Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. This involves extensive use of assumptions about inflation, investment returns, mortality, turnover, and discount rates. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plan could have an adverse impact on our cash flow. Changes in the key actuarial assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and other postretirement benefit plan. See Note M, “Pension Plan,” and Note N, “Non-Qualified Compensation Plan” for information on these plans and the assumptions used.

Income Taxes

9. Income Taxes

The Company and its subsidiaries file consolidated federal and individual state income tax returns. Income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return.

The Company records income taxes on the basis of reported income using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. To the extent that current available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

The Company follows the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 740, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

At September 30, 2020 and 2019, no significant income tax uncertainties have been included in the Company’s Consolidated Balance Sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties were recorded during the year ended September 30, 2020 and 2019. The tax years subject to examination by the taxing authorities are the years ended September 30, 2015 and forward.

Advertising Costs

10. Advertising Costs

The Company expenses advertising costs as incurred.

Earnings Per Share

11. Earnings Per Share

Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. The weighted average common shares outstanding include shares held by the Magyar Bancorp, MHC and shares allocated to the Employee Stock Ownership Plan.

Diluted income per share is calculated by adjusting the weighted average common shares outstanding to reflect the potential dilution that could occur using the treasury stock method if securities or other contracts to issue common stock, such as stock options and unvested restricted stock, were exercised and converted into common stock. The resulting shares issued would share in the earnings of the Company. Shares issued and shares reacquired during the period are weighted for the portion of the period that they were outstanding. In periods of loss, dilution is not calculated and diluted loss per share is equal to basic loss per share. As there were no stock options of grants outstanding at September 30, 2020 or September 30, 2019, there is no calculated dilution to the Company’s earnings per share.

Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

12. Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) includes net income as well as certain other items which result in a change to equity during the period. The other items allocated to comprehensive income (loss), as well as the related income tax effects, for the years ended September 30, 2020 and 2019 were as follows:

	September 30,
	2020									2019
				Tax			Net of						Tax			Net of
	Before Tax			(Benefit)			Tax			Before Tax			(Benefit)			Tax
	Amount			Expense			Amount			Amount			Expense			Amount
	(In thousands)
Unrealized holding (losses) gains arising
during period on:
Available-for-sale investments	$	127		$	(38	)	$	89		$	933		$	(261	)	$	672
Less reclassification adjustment for:
Net gains realized on securities
available-for-sale(a) (b)		(68	)		19			(49	)		(117	)		33			(84	)
Defined benefit pension plan		(150	)		83			(67	)		(618	)		174			(444	)
Other comprehensive income (loss), net	$	(91	)	$	64		$	(27	)	$	198		$	(54	)	$	144

(a) Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of Operations

(b) Tax effect included in income tax expense in the accompanying Consolidated Statements of Operations  

The components of accumulated other comprehensive loss at September 30, 2020 and 2019 were as follows:

	September 30,
	2020			2019
	(In thousands)
Available-for-sale investments, net of tax	$	83		$	43
Defined benefit pension plan, net of tax		(1,440	)		(1,373	)
Total accumulated other comprehensive loss	$	(1,357	)	$	(1,330	)

Bank-Owned Life Insurance

13. Bank-Owned Life Insurance

The Company has purchased Bank-Owned Life Insurance policies (“BOLI”). BOLI involves the purchasing of life insurance by the Company on directors and executive officers. The proceeds are used to help defray the costs of non-qualified compensation plans. The Company is the owner and beneficiary of the policies. BOLI is recorded on the Consolidated Balance Sheets at its cash surrender value and changes in the cash surrender value are recorded in other income in the Consolidated Statement of Operations.

Off-Balance Sheet Credit Related Financial Instruments

14. Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under commercial lines of credit. Such financial instruments are recorded when they are funded. The Company does not engage in the use of derivative financial instruments. See Note Q, “Financial Instruments With Off-Balance Risk.”

Segment Reporting

15. Segment Reporting

The Company acts as an independent, community, financial services provider, and offers traditional banking and related financial services to individual, business and government customers. The Company offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and home equity loans; and the provision of other financial services.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial and retail operations of the Company. As such, discrete financial information is not available and segment reporting would not be meaningful.

New Accounting Pronouncements

16. New Accounting Pronouncements

In connection with the preparation of quarterly and annual reports in accordance with the Securities and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, SEC Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on financial statements when they are adopted in the future.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those fiscal years. The Company currently expects to continue to qualify as a smaller reporting company, based upon the current SEC definition, and as a result, will likely be able to defer implementation of the new standard for a period of time. The Company did not early adopt as of January 1, 2020, but will continue to review factors that might indicate that the full deferral time period should not be used. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses, but the Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The Company cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on its consolidated financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The ASU removes the disclosures of 1) the amounts in accumulated other comprehensive income that the entity expects to recognize in net periodic benefit cost during the next fiscal year, 2) the amount and timing of plan assets expected to be returned to the employer and 3) certain related party disclosures. The ASU clarifies the disclosure requirements for the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets. The ASU adds disclosure requirements for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and for an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

ASU 2018-14 is effective for public business entities in fiscal years ending after December 15, 2020 (Beginning October 1, 2021 for the Company). Early adoption is permitted. The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Schedule of comprehensive income (loss)

Comprehensive income (loss) includes net income as well as certain other items which result in a change to equity during the period. The other items allocated to comprehensive income (loss), as well as the related income tax effects, for the years ended September 30, 2020 and 2019 were as follows:

	September 30,
	2020									2019
				Tax			Net of						Tax			Net of
	Before Tax			(Benefit)			Tax			Before Tax			(Benefit)			Tax
	Amount			Expense			Amount			Amount			Expense			Amount
	(In thousands)
Unrealized holding (losses) gains arising
during period on:
Available-for-sale investments	$	127		$	(38	)	$	89		$	933		$	(261	)	$	672
Less reclassification adjustment for:
Net gains realized on securities
available-for-sale(a) (b)		(68	)		19			(49	)		(117	)		33			(84	)
Defined benefit pension plan		(150	)		83			(67	)		(618	)		174			(444	)
Other comprehensive income (loss), net	$	(91	)	$	64		$	(27	)	$	198		$	(54	)	$	144

(a) Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of Operations

(b) Tax effect included in income tax expense in the accompanying Consolidated Statements of Operations  

The components of accumulated other comprehensive loss at September 30, 2020 and 2019 were as follows:

	September 30,
	2020			2019
	(In thousands)
Available-for-sale investments, net of tax	$	83		$	43
Defined benefit pension plan, net of tax		(1,440	)		(1,373	)
Total accumulated other comprehensive loss	$	(1,357	)	$	(1,330	)

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STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM (Tables)

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement, Noncash Expense [Abstract]

Schedule of the components of the ESOP shares

The following table presents the components of the ESOP shares as of September 30, 2019:

Unreleased shares at September 30, 2019	27,202
Shares released for allocation during the year ended September 30, 2020	(12,445	)
Unreleased shares at September 30, 2020	14,757
Total released shares	203,106
Total ESOP shares	217,863

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INVESTMENT SECURITIES (Tables)

12 Months Ended

Sep. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Schedule amortized cost, gross unrealized gians or losses and fair values of investment securities available for sale and held to maturity

The amortized cost, gross unrealized gains or losses and fair value of the Company’s investment securities available-for-sale and held-to-maturity are as follows:

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	350	$	14	$	—		$	364
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,092		108		(6	)		9,194
Debt securities		5,000		3		—			5,003
Total securities available for sale	$	14,442	$	125	$	(6	)	$	14,561

	September 30, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	1,453	$	11	$	(33	)	$	1,431
Mortgage-backed securities - commercial		775		—		—			775
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		20,456		697		(3	)		21,150
Debt securities		4,500		1		(16	)		4,485
Private label mortgage-backed securities - residential		259		—		(5	)		254
Corporate securities		3,000		—		(196	)		2,804
Total securities held to maturity	$	30,443	$	709	$	(253	)	$	30,899

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential	$	480	$	15	$	—		$	495
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,663	$	80	$	(35	)	$	14,708
Debt securities		1,500		—		—			1,500
Total securities available-for-sale	$	16,643	$	95	$	(35	)	$	16,703

	At September 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	445	$	—	$	(54	)	$	391
Mortgage-backed securities - commercial		842		—		(6	)		836
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential		22,363		276		(47	)		22,592
Debt securities		2,468		10		—			2,478
Private label mortgage-backed securities - residential		363		7		—			370
Corporate securities		3,000		—		(323	)		2,677
Total securities held-to-maturity	$	29,481	$	293	$	(430	)	$	29,344

Schedule of maturities of the debt securities and mortgage-backed securities available-for-sale and held to maturity

The contractual maturities of mortgage-backed securities generally exceed 10 years; however, the effective lives are expected to be shorter due to anticipated prepayments. The maturities of the debt securities and certain information regarding to the mortgage-backed securities available-for-sale at September 30, 2020 are summarized in the following table:

	September 30, 2020
	(In thousands)
	Amortized		Fair
	Cost		Value
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		5,000		5,003
Due after 5 but within 10 years		—		—
Due after 10 years		—		—
Total debt securities		5,000		5,003
Mortgage-backed securities:
Residential(1)		9,442		9,558
Commercial		—		—
Total	$	14,442	$	14,561

⁽¹⁾ Available-for-sale mortgage-backed securities – residential include an amortized cost of $350,000 and a fair value of $364,000 for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $9.1 million and a fair value of $9.2 million. There were no residential mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises.

The maturities of the debt securities and certain information regarding to the mortgage-backed securities held to maturity at September 30, 2020 are summarized in the following table:

	September 30, 2020
	Amortized		Fair
	Cost		Value
	(In thousands)
Due within 1 year	$	—	$	—
Due after 1 but within 5 years		4,500		4,486
Due after 5 but within 10 years		3,000		2,803
Due after 10 years		—		—
Total debt securities		7,500		7,289
Mortgage backed securities:
Residential(1)		22,168		22,835
Commercial(2)		775		775
Total	$	30,443	$	30,899

⁽¹⁾ Held-to-maturity mortgage-backed securities – residential include an amortized cost of $1.5 million and a fair value of $1.4 million for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $20.5 million and a fair value of $21.2 million. Also included are mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises with an amortized cost of $259,000 and a fair value of $254,000.

⁽²⁾ Held-to-maturity mortgage-backed securities – commercial include an amortized cost of $775,000 and a fair value of $775,000 for obligations of U.S. government agencies issued by the Small Business Administration.

Schedule of securities with unrealized losses

Details of securities with unrealized losses at September 30, 2020 and 2019 are as follows:

			September 30, 2020
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		2	$	—	$	—		$	284	$	(33	)	$	284	$	(33	)
Mortgage-backed securities - commercial		1		—		—			775		—			775		—
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential		2		2,854		(3	)		533		(6	)		3,387		(9	)
Debt securities		2		2,484		(16	)		—		—			2,484		(16	)
Private label mortgage-backed securities residential		1		254		(5	)		—		—			254		(5	)
Corporate securities		1		—		—			2,804		(196	)		2,804		(196	)
Total		9	$	5,592	$	(24	)	$	4,396	$	(235	)	$	9,988	$	(259	)

			September 30, 2019
			Less Than 12 Months					12 Months Or Greater					Total
	Number of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Securities		Value		Losses			Value		Losses			Value		Losses
			(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities- residential		2	$	—	$	—		$	392	$	(54	)	$	392	$	(54	)
Mortgage-backed securities - commercial		1		—		—			836		(6	)		836		(6	)
Obligations of U.S. government-sponsored enterprises
Mortgage backed securities- residential		13		1,219		(4	)		14,429		(78	)		15,648		(82	)
Corporate securities		1		—		—			2,678		(323	)		2,678		(323	)
Total		17	$	1,219	$	(4	)	$	18,335	$	(461	)	$	19,554	$	(465	)

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LOANS RECEIVABLE, NET (Tables)

12 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Schedule of net Loans

Loans receivable are comprised of the following:

	September 30,
	2020			2019
	(In thousands)
One-to four-family residential	$	210,360		$	190,415
Commercial real estate		248,134			232,544
Construction		28,242			28,451
Home equity lines of credit		19,373			17,832
Commercial business		100,993			48,769
Other		4,157			4,990
Total loans receivable		611,259			523,001
Net deferred loan costs		(1,749	)		104
Allowance for loan losses		(6,400	)		(4,888	)
Total loans receivable, net	$	603,110		$	518,217

Schedule of impaired loans

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods presented:

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2020	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	2,601	$	2,601	$	2,601
Commercial real estate		599		46		3,806		4,405		4,405
Construction		2,306		175		2,835		5,141		5,206
Commercial business		—		—		2,014		2,014		2,218
Total impaired loans	$	2,905	$	221	$	11,256	$	14,161	$	14,430

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2019	Investment		Allowance		Investment		Investment		Balance
	(In thousands)
One-to four-family residential	$	—	$	—	$	1,405	$	1,405	$	1,405
Commercial real estate		—		—		4,593		4,593		4,593
Construction		—		—		2,900		2,900		2,900
Commercial business		—		—		1,456		1,456		1,456
Total impaired loans	$	—	$	—	$	10,354	$	10,354	$	10,354

Schedule of loan portfolio summarized by Bank's internal risk rating system

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system for the periods presented:

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2020
One-to four-family residential	$	208,658	$	—	$	1,702	$	—	$	210,360
Commercial real estate		242,003		2,623		3,508		—		248,134
Construction		23,101		—		5,141		—		28,242
Home equity lines of credit		19,373		—		—		—		19,373
Commercial business		98,967		178		1,848		—		100,993
Other		4,157		—		—		—		4,157
Total	$	596,259	$	2,801	$	12,199	$	—	$	611,259

			Special
	Pass		Mention		Substandard		Doubtful		Total
	(In  thousands)
September 30, 2019
One-to four-family residential	$	189,938	$	—	$	477	$	—	$	190,415
Commercial real estate		228,156		1,409		2,979		—		232,544
Construction		25,551		—		2,900		—		28,451
Home equity lines of credit		17,832		—		—		—		17,832
Commercial business		47,541		—		1,228		—		48,769
Other		4,990		—		—		—		4,990
Total	$	514,008	$	1,409	$	7,584	$	—	$	523,001

Schedule of aging analysis of past due loans, segregated by class of loans

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans for the periods presented:

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2020
One-to four-family residential	$	209,455	$	—	$	—	$	905	$	905	$	905	$	210,360
Commercial real estate		245,029		—		886		2,219		3,105		2,219		248,134
Construction		23,101		—		—		5,141		5,141		5,141		28,242
Home equity lines of credit		19,373		—		—		—		—		—		19,373
Commercial business		99,397		—		129		1,467		1,596		1,467		100,993
Other		4,157		—		—		—		—		—		4,157
Total	$	600,512	$	—	$	1,015	$	9,732	$	10,747	$	9,732	$	611,259

			30-59		60-89
			Days		Days		90 Days +		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
	(In  thousands)
September 30, 2019
One-to four-family residential	$	190,301	$	—	$	—	$	114	$	114	$	114	$	190,415
Commercial real estate		229,331		503		58		2,652		3,213		2,652		232,544
Construction		25,551		—		—		2,900		2,900		2,900		28,451
Home equity lines of credit		17,832		—		—		—		—		—		17,832
Commercial business		47,541		—		—		1,228		1,228		1,228		48,769
Other		4,990		—		—		—		—		—		4,990
Total	$	515,546	$	503	$	58	$	6,894	$	7,455	$	6,894	$	523,001

Schedule of activity in the allowance for loan losses by portfolio segment

The following tables summarize the activity in the allowance for loan losses by loan category for the years ended September 30, 2020 and 2019:

	One-to Four-							Home Equity
	Family		Commercial					Lines of		Commercial
	Residential		Real Estate		Construction			Credit		Business			Other			Unallocated			Total
	(In  thousands)
Balance-September 30, 2019	$	731	$	2,066	$	511		$	138	$	1,184		$	8		$	250		$	4,888
Charge-offs		—		—		(65	)		—		(204	)		—			—			(269	)
Recoveries		11		5		—			—		99			—			—			115
Provision (credit)		293		1,161		226			41		(45	)		(7	)		(3	)		1,666
Balance-September 30, 2020	$	1,035	$	3,232	$	672		$	179	$	1,034		$	1		$	247		$	6,400

	One-to Four-								Home Equity
	Family			Commercial					Lines of		Commercial
	Residential			Real Estate			Construction		Credit		Business			Other			Unallocated		Total
	(In  thousands)
Balance-September 30, 2018	$	687		$	1,540		$	493	$	109	$	1,151		$	25		$	195	$	4,200
Charge-offs		—			(1	)		—		—		(100	)		—			—		(101	)
Recoveries		120			—			—		1		—			—			—		121
Provision (credit)		(76	)		527			18		28		133			(17	)		55		668
Balance-September 30, 2019	$	731		$	2,066		$	511	$	138	$	1,184		$	8		$	250	$	4,888

The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and September 30, 2019:

	One-to-Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(In  thousands)
Allowance for Loan Losses:
Balance - September 30, 2020	$	1,035	$	3,232	$	672	$	179	$	1,034	$	1	$	247	$	6,400
Individually evaluated
for impairment		—		46		175		—		—		—		—		221
Collectively evaluated
for impairment		1,035		3,186		497		179		1,034		1		247		6,179
Loans receivable:
Balance - September 30, 2020	$	210,360	$	248,134	$	28,242	$	19,373	$	100,993	$	4,157	$	—	$	611,259
Individually evaluated
for impairment		2,601		4,405		5,141		—		2,014		—		—		14,161
Collectively evaluated
for impairment		207,759		243,729		23,101		19,373		98,979		4,157		—		597,098

	One-to- Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(Dollars in  thousands)
Allowance for Loan Losses:
Balance - September 30, 2019	$	731	$	2,066	$	511	$	138	$	1,184	$	8	$	250	$	4,888
Individually evaluated
for impairment		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		731		2,066		511		138		1,184		8		250		4,888
Loans receivable:
Balance - September 30, 2019	$	190,415	$	232,544	$	28,451	$	17,832	$	48,769	$	4,990	$	—	$	523,001
Individually evaluated
for impairment		1,405		4,593		2,900		—		1,456		—		—		10,354
Collectively evaluated
for impairment		189,010		227,951		25,551		17,832		47,313		4,990		—		512,647

Schedule of troubled debt restructurings

The following tables summarize the TDRs during the years ended September 30, 2020 and 2019:

	Year Ended September 30, 2020
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
Commercial business		1	$	252	$	220
Total		1	$	252	$	220

	Year Ended September 30, 2019
	Number of		Investment Before		Investment After
	Loans		TDR Modification		TDR Modification
	(Dollars in thousands)
One-to four-family residential		1	$	260	$	363
Total		1	$	260	$	363

Schedule of actaul loan modifications

Details with respect to actual loan modifications are as follows:

Type of Loan September 30, 2020	Number of Loans		Balance
			(In  thousands)
One- to four-family residential real estate (1)		94	$	24,573
Commercial real estate		145		115,358
Construction		4		2,630
Home equity lines of credit		8		1,238
Commercial business		32		6,892
Total		283	$	150,691
(1) Includes home equity loans.

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ACCRUED INTEREST RECEIVABLE (Tables)

12 Months Ended

Sep. 30, 2020

Interest Receivable and Other Assets [Abstract]

ACCRUED INTEREST RECEIVABLE

The following is a summary of accrued interest receivable:

	September 30,
	2020		2019
	(In thousands)
Loans	$	3,943	$	2,005
Investment securities		22		47
Mortgage-backed securities		65		81
Total accrued interest receivable	$	4,030	$	2,133

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

	Estimated	September 30,
	Useful Lives	2020			2019
		(In thousands)
Land	Indefinite	$	3,811		$	3,811
Buildings and improvements	10-40 years		21,622			22,524
Furniture, fixtures and equipment	5-10  years		3,407			3,300
			28,840			29,635
Less accumulated depreciation			(14,094	)		(13,463	)
Premises and equipment, net		$	14,746		$	16,172

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DEPOSITS (Tables)

12 Months Ended

Sep. 30, 2020

Deposits [Abstract]

Schedule of deposits by type of account

A summary of deposits by type of account follows:

	September 30,
	2020		2019
	(In thousands)
Demand accounts	$	163,562	$	106,422
Savings accounts		74,923		70,598
NOW accounts		65,447		48,164
Money market accounts		188,023		188,115
Certificate of deposit		110,650		100,016
Retirement accounts		15,725		16,760
Total deposits	$	618,330	$	530,075

Schedule of contractual maturities of certificates of deposit

At September 30, 2020, certificates of deposit (including retirement accounts and brokered certificate deposit accounts) have contractual maturities as follows (in thousands):

Year Ending September 30,
2021	$	79,120
2022		26,209
2023		8,738
2024		6,377
2025 and after		5,931
Total	$	126,375

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BORROWINGS (Tables)

12 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of maturities of FHLBNY advances

Long term FHLBNY advances as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	7,130
2022		10,731
2023		4,741
2024		4,384
2025		3,500
Thereafter		—
Total	$	30,486

Schedule of short-term arrangements with the FHLBNY

Additionally, the Company has established an Overnight Line of Credit arrangement with the FHLBNY. The total amount available under the line of credit is based on the amount of eligible collateral pledged to the FHLBNY. At September 30, 2020 and 2019, the Company had available credit from the FHLBNY totaling $61.3 million and $76.7 million, respectively. Information concerning short-term borrowings with the FHLBNY is summarized as follows:

	September 30,
	2020		2019
	(Dollars in thousands)
Balance at end of year	$	—	$	—
Weighted average balance during the year	$	—	$	743
Maximum month-end balance during the year	$	—	$	16,800
Average interest rate during the year		—		2.45%

Schedule of PPPLF advances from the FRBNY

PPPLF advances from the FRBNY as of September 30, 2020 mature as follows (in thousands):

Year Ending September 30,
2021	$	—
2022		36,924
2023		—
2024		—
2025		—
Thereafter		—
Total	$	36,924

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SERVICING POLICY (Tables)

12 Months Ended

Sep. 30, 2020

Transfers and Servicing [Abstract]

Schedule of activity in mortgage servicing rights

Activity in mortgage servicing rights during the years ended September 30, 2020 and 2019 are summarized as follows:

	September 30,
	2020			2019
	(In thousands)
Beginning balance	$	26		$	45
Origination of mortgage servicing rights		—			—
Amortization		(14	)		(19	)
Ending balance	$	12		$	26

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INCOME TAXES (Tables)

12 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Schedule of components of income tax expense

The Company’s income tax expense is comprised of the following components for the years ended September 30, 2020 and 2019:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at the statutory federal tax rate of 21%
for the year ended September 30, 2020 and 2019, respectively	$	653		$	895
State tax expense		323			397
Other		(55	)		(27	)
Income tax expense	$	921		$	1,265

Schedule of reconciliation of income tax at the statutory rate to effective tax rate

A reconciliation of income tax at the statutory tax rate to the effective income tax expense for the years ended September 30, 2020 and 2019 is as follows:

	September 30,
	2020			2019
	(In thousands)
Income tax expense at statutory rate	$	653		$	895
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit		323			397
Tax-exempt income, net		(68	)		(64	)
Nondeductible expenses		18			26
Employee stock ownership plan		(5	)		2
Other, net		—			9
Total income tax expense	$	921		$	1,265

Schedule of major sources of temporary differences and their deferred tax effect

The major sources of temporary differences and their deferred tax effect at September 30, 2020 and 2019 are as follows:

	September 30,
	2020			2019
	(In thousands)
Allowance for loan losses	$	1,799		$	1,374
Deferred loan fees		731			76
Unrealized loss, minimum pension liability		620			537
OREO		73			424
Straight line rent		110			118
Gross deferred tax asset		3,333			2,529
Depreciation		(872	)		(931	)
Discount accretion on investments		(61	)		(89	)
Employee benefits		(37	)		(107	)
Net unrealized gain, investment securities available-for-sale		—			(17	)
Mortgage servicing rights		(3	)		(7	)
Gross deferred tax liability		(973	)		(1,151	)
Net deferred tax asset		2,360			1,378

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PENSION PLAN (Tables)

12 Months Ended

Sep. 30, 2020

Retirement Benefits [Abstract]

Schedule of plan's funded status and amounts recognized

The following table sets forth the Plan’s funded status and amounts recognized in the Company’s Consolidated Balance Sheets at September 30, 2020 and September 30, 2019.

	September 30,
	2020			2019
	(In thousands)
Actuarial present value of benefit obligations	$	5,227		$	4,990
Change in benefit obligations
Projected benefit obligation, beginning	$	4,990		$	4,390
Interest cost		158			182
Actuarial (gain) loss		278			614
Annuity payments and lump sum distributions		(199	)		(196	)
Projected benefit obligation, end	$	5,227		$	4,990
Change in plan assets
Fair value of assets, beginning	$	3,581		$	3,403
Actual return on plan assets		172			124
Employer contributions		25			250
Annuity payments and lump sum distributions		(199	)		(196	)
Fair value of assets, end	$	3,579		$	3,581
Funded status included with other liabilities	$	(1,648	)	$	(1,409	)

Schedule of net pension costs

Net pension cost for the years ended September 30, 2020 and 2019 included the following components:

	September 30,
	2020			2019
	(In thousands)
Service cost benefits earned during the year	$	—		$	—
Interest cost on projected benefit obligation		158			182
Expected return on plan assets		(225	)		(233	)
Amortization of unrecognized net loss		181			105
Net pension cost	$	114		$	54

Schedule of weighted-average asset allocations by asset category

The Plan’s weighted-average asset allocations at September 30, 2020 and 2019, by asset category are as follows:

	September 30,
	2020		2019
Equity securities		64%		61%
Debt securities (bond mutual funds)		35%		36%
Other (money market fund)		1%		3%
Total		100%		100%

Schedule of expected benefit payments

The following benefit payments are expected to be paid as follows (in thousands):

October 1, 2020 through September 30, 2021	$	225
October 1, 2021 through September 30, 2022		226
October 1, 2022 through September 30, 2023		230
October 1, 2023 through September 30, 2024		246
October 1, 2024 through September 30, 2025		245
October 1, 2025 through September 30, 2030		1,286
Total	$	2,458

Schedule of plan assets that are measured at fair value

The following table presents the Plan assets that are measured at fair value on a recurring basis by level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note R for further detail regarding fair value hierarchy.

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2020
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	468	$	468	$	—	$	—
Large-Cap Core		576		576		—		—
Mid-Cap Core		220		220		—		—
Small-Cap Core		196		196		—		—
Non-U.S. Core		833		833		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,241		1,241		—		—
Cash Equivalents
Money Market		45		45		—		—
Total Investment	$	3,579	$	3,579	$	—	$	—

			Fair Value Measurements at Reporting Date Using:
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total		Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
	(In thousands)
At September 30, 2019
Investment Type
Mutual Funds- Equity
Large-Cap Value	$	484	$	484	$	—	$	—
Large-Cap Core		500		500		—		—
Mid-Cap Core		205		205		—		—
Small-Cap Core		193		193		—		—
Non-U.S. Core		802		802		—		—
Mutual Funds- Fixed Income
Intermediate-Term Core		1,304		1,304		—		—
Cash Equivalents
Money Market		93		93		—		—
Total Investment	$	3,581	$	3,581	$	—	$	—

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COMMITMENTS (Tables)

12 Months Ended

Sep. 30, 2020

Commitments Tables

Schedule of future minimum payments of operating leases

Approximate future minimum payments under non-cancelable operating leases are due as follows for the years indicated (in thousands):

September 30, 2021	$	705
September 30, 2022		592
September 30, 2023		599
September 30, 2024		602
September 30, 2025		378
Thereafter		1,208
Total	$	4,084

Schedule of Balance Sheet Information Related to Leases

The following table presents the balance sheet information related to our leases:

	September 30, 2020
	(Dollars in thousands)
Operating lease right-of-use asset	$	3,240
Operating lease liabilities	$	3,631
Weighted average remaining lease term in years		7.5
Weighted average discount rate		2.2%

Schedule of Maturity of Remaining Lease Liabilities

The following table summarizes the maturity of our remaining lease liabilities by year:

	September 30, 2020
	(In thousands)
For the Year Ending:
2021	$	705
2022		595
2023		602
2024		602
2025		378
2026 and thereafter		1,150
Total lease payments		4,032
Less imputed interest		(401	)
Present value of lease liabilities	$	3,631

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Tables)

12 Months Ended

Sep. 30, 2020

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK [Abstract]

Schedule of fair value, off-balance-sheet financial instruments

At September 30, 2020 and 2019, the Company had outstanding commitments (substantially all of which expire within one year) to originate one-to four-family residential loans, construction loans, commercial real estate loans, commercial business loans and consumer loans. These commitments were comprised of fixed and variable rate loans.

	September 30,
	2020		2019
	(In thousands)
Financial instruments whose contract amounts
represent credit risk
Letters of credit	$	1,041	$	1,315
Unused lines of credit		78,632		56,405
Fixed rate loan commitments		5,240		3,362
Variable rate loan commitments		15,864		12,141
Total	$	100,777	$	73,223

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FAIR VALUE DISCLOSURES (Tables)

12 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Schedule of assets measured at fair value on a recurring basis

The following table provides the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	364	$	—	$	364	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential		9,194		—		9,194		—
Debt securities		5,003		—		5,003		—
Total securities available for sale	$	14,561	$	—	$	14,561	$	—

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential	$	495	$	—	$	495	$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential	$	14,708	$	—	$	14,708	$	—
Debt securities		1,500		—		1,500		—
Total securities available for sale	$	16,703	$	—	$	16,703	$	—

Schedule of assets measured at fair value on a non-recurring basis

The following tables provide the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a non-recurring basis at September 30, 2020 and 2019:

	Fair Value at September 30, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	11,874	$	—	$	—	$	11,874
Other real estate owned		2,594		—		—		2,594
Total	$	14,468	$	—	$	—	$	14,468

	Fair Value at September 30, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	6,835	$	—	$	—	$	6,835
Other real estate owned		7,528		—		—		7,528
Total	$	14,363	$	—	$	—	$	14,363

Schedule of quantitative information about assets measured at fair value on a nonrecurring bassis for which Level 3 inputs were used to determine fair value

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2020	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$   11,874	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -50.0% (-11.6%)
Other real estate owned	$     2,594	Appraisal of collateral (1)	Liquidation expenses (2)	-6.0% to -27.4% (-14.7%)

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
	Fair Value	Valuation
September 30, 2019	Estimate	Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$     6,835	Appraisal of collateral (1)	Appraisal adjustments (2)	-1.9% to -67.2% (-25.0%)
Other real estate owned	$     7,528	Appraisal of collateral (1)	Liquidation expenses (2)	-9.2% to -48.5% (-19.4%)

(1) Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Schedule of the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments carried at cost or amortized cost

	Carrying		Fair		Fair Value Measurement Placement
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
September 30, 2020
Financial instruments - assets
Investment securities held-to-maturity	$	30,443	$	30,899	$	—	$	30,899	$	—
Loans		603,110		617,418		—		—		617,418
Financial instruments - liabilities
Certificates of deposit		126,375		128,590		—		128,590		—
Borrowings		67,410		68,386		—		68,386		—
September 30, 2019
Financial instruments - assets
Investment securities held-to-maturity	$	29,481	$	29,344	$	—	$	29,344	$	—
Loans		518,217		527,088		—		—		527,088
Financial instruments - liabilities
Certificates of deposit		116,776		117,730		—		117,730		—
Borrowings		36,189		36,583		—		36,583		—

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REGULATORY CAPITAL (Tables)

12 Months Ended

Sep. 30, 2020

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

Schedule of regulatory capital compliance

The following tables set forth the Company’s and the Bank’s actual and required capital levels under those measures:

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2020		adequacy purposes	action provisions
	Company	Bank	September 30, 2020	Bank
Tier 1 leverage ratio	7.84%	8.30%	≥  4.00%	≥   5.00%
CET1	11.84%	11.93%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.93%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	13.09%	13.18%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

				To be well-
				capitalized under
			Required for capital	prompt corrective
	At September 30, 2019		adequacy purposes	action provisions
	Company	Bank	September 30, 2019	Bank
Tier 1 leverage ratio	8.94%	9.03%	≥  4.00%	≥   5.00%
CET1	11.84%	11.96%	≥  7.00% (1)	≥   6.50%
Tier 1 risk-based capital ratio	11.84%	11.96%	≥  8.50% (1)	≥   8.00%
Total risk-based capital ratio	12.88%	12.99%	≥  10.50% (1)	≥ 10.00%
(1) Includes 2.50% capital conservation buffer

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ORGANIZATION (Details) - shares	Sep. 30, 2020	Sep. 30, 2019
Common stock, shares outstanding	5,810,746	5,820,746
Treasury stock, shares	112,996	102,996
Magyar Bancorp, MHC [Member]
Ownership of Maygar Bancorp, Inc. (percentage)	54.03%
Common stock, shares outstanding	3,200,450
Treasury Stock [Member]
Ownership of Maygar Bancorp, Inc. (percentage)	1.91%
Treasury stock, shares	112,996
Magyar Bank [Member]
Ownership of Maygar Bancorp, Inc. (percentage)	44.06%
Common stock, shares outstanding	2,610,296
Hungaria Urban Renewal [Member]
Ownership of subsidiaries	100.00%
Magyar Bancorp, MHC [Member]
Ownership of subsidiaries	100.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Accounting Policies [Abstract]
Commercial relationships	$ 500
Criticized relationships	250
Revenue from contracts with customers included in service charges	901	$ 1,400
Revenue from contracts with customers included in other operating income	$ 106	$ 148

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Other Items Allocated to Comprehensive Income/Loss) (Details) - USD ($) $ in Thousands		12 Months Ended
		Sep. 30, 2020	Sep. 30, 2019
Unrealized holding (losses) gains arising during period on:
Available-for-sale investments before tax		$ 127	$ 933
Tax benefit (expense)		(38)	(261)
Available-for-sale investments after tax		89	672
Less reclassification adjustment for net gains realized on securities available-for-sale investments before tax	[1],[2]	(68)	(117)
Tax benefit (expense)	[1],[2]	19	33
Less reclassification adjustment for net gains realized on securities available-for-sale investments after tax	[1],[2]	(49)	(84)
Defined benefit pension plan before tax		(150)	(618)
Tax benefit (expense)		83	174
Defined benefit pension plan after tax		(67)	(444)
Other comprehensive loss, net before tax		(91)	198
Tax benefit (expense), Total		64	(54)
Other comprehensive gain (loss), net		$ (27)	$ 144

[1] Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated Statements of Operations

[2] Tax effect included in income tax expense in the accompanying Consolidated Statements of Operations

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Components of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Accounting Policies [Abstract]
Available-for-sale investments, net of tax	$ 83	$ 43
Defined benefit pension plan, net of tax	(1,440)	(1,373)
Total accumulated other comprehensive loss	$ (1,357)	$ (1,330)

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STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended		155 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020
Stock option expenses	$ 0	$ 0
Stock award expenses	0	0
Cost of shares repurchased by ESOP trust	$ 2,300
Average cost of shares repurchased (per share)	$ 10.58
Description of loan with respect to employee stock ownership plan	The ESOP trust purchased 217,863 shares of common stock in the open market using proceeds of a loan from the Company. The total cost of shares purchased by the ESOP trust was $2.3 million, reflecting an average cost per share of $10.58. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears a variable interest rate that adjusts annually to Prime Rate (4.75% at January 1, 2020) with principal and interest payable annually in equal installments over thirty years. The loan is secured by shares of the Company's stock.
Interest rate of loan with respect to employee stock ownership plan	4.75%		4.75%
Fair value of unreleased shares	$ 123		$ 123
ESOP compensation expense	$ 126	$ 149
Total ESOP shares	217,863		217,863
Treasury stock, shares	112,996	102,996	112,996
Second Repurchase Program [Member]
Maximum stock repurchase authorization (as a percent)			5.00%
Stock authorized to be repurchased (in shares)	129,924		129,924
Stock repurchased during period (in shares)	10,000		91,000
Remaining shares available to be repurchased	38,924		38,924
Common stock average cost (in dollars per share)	$ 9.03		$ 8.41
Stock Option [Member]
Vesting period	5 years
Expiration period	10 years

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STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM (Schedule of Components of the ESOP Shares) (Details)	Sep. 30, 2020 shares
Share-based Payment Arrangement, Noncash Expense [Abstract]
Unreleased shares, beginning	27,202
Shares released for allocation during the year	(12,445)
Unreleased shares, ending	14,757
Total released shares	203,106
Total ESOP shares	217,863

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INVESTMENT SECURITIES (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]
Securities pledged to secure public deposits, fair value	$ 22,600	$ 18,900
Sales of securities from the available-for-sale	6,100	6,600
Sales from the held-to-maturity
Net gain on sales of investment securities	$ 68	$ 117

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INVESTMENT SECURITIES (Schedule of the Unamortized Cost, Gross Unrealized Gains or Losses and Fair Value of Investment Securities Available-For-Sale and Held-To-Maturity) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Securities available-for-sale:
Amortized Cost	$ 14,442	$ 16,643
Gross Unrealized Gains	125	95
Gross Unrealized Losses	(6)	(35)
Fair Value	14,561	16,703
Securities held-to-maturity:
Amortized Cost	30,443	29,481
Gross Unrealized Gains	709	293
Gross Unrealized Losses	(253)	(430)
Fair Value	30,899	29,344
Obligations of U.S. government agencies Mortgage backed securities - residential [Member]
Securities available-for-sale:
Amortized Cost	350	480
Gross Unrealized Gains	14	15
Gross Unrealized Losses
Fair Value	364	495
Securities held-to-maturity:
Amortized Cost	1,453	445
Gross Unrealized Gains	11
Gross Unrealized Losses	(33)	(54)
Fair Value	1,431	391
Obligations of U.S. government agencies Mortgage backed securities -commercial [Member]
Securities held-to-maturity:
Amortized Cost	775	842
Gross Unrealized Gains
Gross Unrealized Losses		(6)
Fair Value	775	836
Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Securities available-for-sale:
Amortized Cost	9,092	14,663
Gross Unrealized Gains	108	80
Gross Unrealized Losses	(6)	(35)
Fair Value	9,194	14,708
Securities held-to-maturity:
Amortized Cost	20,456	22,363
Gross Unrealized Gains	697	276
Gross Unrealized Losses	(3)	(47)
Fair Value	21,150	22,592
Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Securities available-for-sale:
Amortized Cost	5,000	1,500
Gross Unrealized Gains	3
Gross Unrealized Losses
Fair Value	5,003	1,500
Securities held-to-maturity:
Amortized Cost	4,500	2,468
Gross Unrealized Gains	1	10
Gross Unrealized Losses	(16)
Fair Value	4,485	2,478
Private label mortgage-backed securities-residential [Member]
Securities held-to-maturity:
Amortized Cost	259	363
Gross Unrealized Gains		7
Gross Unrealized Losses	(5)
Fair Value	254	370
Corporate securities [Member]
Securities held-to-maturity:
Amortized Cost	3,000	3,000
Gross Unrealized Gains
Gross Unrealized Losses	(196)	(323)
Fair Value	$ 2,804	$ 2,677

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INVESTMENT SECURITIES (Schedule of Amortized Cost and Fair Value of Securities Available-For-Sale) (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Sep. 30, 2019
Available for Sale Securities, Amortized Cost
Due within 1 year
Due after 1 but within 5 years		5,000
Due after 5 but within 10 years
Due after 10 years
Total debt securities		5,000
Mortgage Backed Securities, Residential	[1]	9,442
Mortgage Backed Securities, Commercial
Amortized Cost		14,442	$ 16,643
Available for Sale Securities, Fair Value
Due within 1 year
Due after 1 but within 5 years		5,003
Due after 5 but within 10 years
Due after 10 years
Total debt securities		5,003
Mortgage Backed Securities, Residential	[1]	9,558
Mortgage Backed Securities, Commercial
Fair Value		$ 14,561	$ 16,703

[1] Available-for-sale mortgage-backed securities - residential include an amortized cost of $350,000 and a fair value of $364,000 for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $9.1 million and a fair value of $9.2 million. There were no residential mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises.

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INVESTMENT SECURITIES (Schedule of Maturities of the Debt Securities and the Mortgage-Backed Securities Held-To-Maturity) (Details) - USD ($) $ in Thousands		Sep. 30, 2020	Sep. 30, 2019
Held to Maturity Securities, Amortized Cost
Due within 1 year
Due after 1 but within 5 years		4,500
Due after 5 but within 10 years		3,000
Due after 10 years
Total debt securities		7,500
Mortgage Backed Securities, Residential	[1]	22,168
Mortgage Backed Securities, Commercial	[2]	775
Amortized cost		30,443	$ 29,481
Held to Maturity Securities, Fair Value
Due within 1 year
Due after 1 but within 5 years		4,486
Due after 5 but within 10 years		2,803
Due after 10 years
Total debt securities		7,289
Mortgage Backed Securities, Residential	[1]	22,835
Mortgage Backed Securities, Commercial	[2]	775
Fair value		$ 30,899	$ 29,344

[1] Held-to-maturity mortgage-backed securities - residential include an amortized cost of $1.5 million and a fair value of $1.4 million for obligations of U.S. government agencies issued by the Government National Mortgage Association and obligations of U.S. government-sponsored enterprises issued by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation which had an amortized cost of $20.5 million and a fair value of $21.2 million. Also included are mortgage backed securities issued by non-U.S. government agencies and government-sponsored enterprises with an amortized cost of $259,000 and a fair value of $254,000.

[2] Held-to-maturity mortgage-backed securities - commercial include an amortized cost of $775,000 and a fair value of $775,000 for obligations of U.S. government agencies issued by the Small Business Administration.

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INVESTMENT SECURITIES (Schedule of Securities With Unrealized Losses) (Details) $ in Thousands	Sep. 30, 2020 USD ($) N	Sep. 30, 2019 USD ($) N
Available For Sale and Held To Maturity Securities
Number of Securities | N	9	17
Less than 12 Months, Fair Value	$ 5,592	$ 1,219
Less than 12 Months, Unrealized Losses	(24)	(4)
12 Months or Longer, Fair Value	4,396	18,335
12 Months or Longer, Unrealized Losses	(235)	(461)
Total, Fair Value	9,988	19,554
Total, Unrealized Losses	$ (259)	$ (465)
Obligations of U.S. government agencies Mortgage backed securities - residential [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	2	2
Less than 12 Months, Fair Value
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	284	392
12 Months or Longer, Unrealized Losses	(33)	(54)
Total, Fair Value	284	392
Total, Unrealized Losses	$ (33)	$ (54)
Obligations of U.S. government agencies Mortgage backed securities -commercial [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	1	1
Less than 12 Months, Fair Value
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	775	836
12 Months or Longer, Unrealized Losses		(6)
Total, Fair Value	775	836
Total, Unrealized Losses		$ (6)
Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	2	13
Less than 12 Months, Fair Value	$ 2,854	$ 1,219
Less than 12 Months, Unrealized Losses	(3)	(4)
12 Months or Longer, Fair Value	533	14,429
12 Months or Longer, Unrealized Losses	(6)	(78)
Total, Fair Value	3,387	15,648
Total, Unrealized Losses	$ (9)	$ (82)
Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	2
Less than 12 Months, Fair Value	$ 2,484
Less than 12 Months, Unrealized Losses	(16)
12 Months or Longer, Fair Value
12 Months or Longer, Unrealized Losses
Total, Fair Value	2,484
Total, Unrealized Losses	$ (16)
Private label mortgage-backed securities-residential [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	1
Less than 12 Months, Fair Value	$ 254
Less than 12 Months, Unrealized Losses	(5)
12 Months or Longer, Fair Value
12 Months or Longer, Unrealized Losses
Total, Fair Value	254
Total, Unrealized Losses	$ (5)
Corporate securities [Member]
Available For Sale and Held To Maturity Securities
Number of Securities | N	1	1
Less than 12 Months, Fair Value
Less than 12 Months, Unrealized Losses
12 Months or Longer, Fair Value	2,804	2,678
12 Months or Longer, Unrealized Losses	(196)	(323)
Total, Fair Value	2,804	2,678
Total, Unrealized Losses	$ (196)	$ (323)

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LOANS RECEIVABLE, NET (Narrative) (Details) $ in Thousands	1 Months Ended	12 Months Ended
	Nov. 30, 2020 USD ($) N	Sep. 30, 2020 USD ($) N	Sep. 30, 2019 USD ($) N
Financing Receivable, Past Due [Line Items]
Loans receivable from directors, executives, affiliates		$ 2,500	$ 2,900
Principal Additions - loans receivable-related parties		400	502
Principal Repayments - loans receivable-related parties		775	233
Value of loans serviced on behalf of others		42,700	42,300
Mortgage Servicing Rights		12	26
Escrow balance held for loans serviced on behalf of others		61	78
Average Recorded Investment		11,700	9,200
Interest Income not recognized on non-accrual loans		508	530
Interest-only mortgage loans
Loans pledged as collateral against Federal Home Loan Bank of New York borrowings		184,100	176,900
Troubled Debt Restructurings Loans		2,900
Troubled Debt Restructurings Loans defaulted
Delinquent loans		11,400
Interest income		$ 142	$ 165
Number of Loans | N		1	1
Subsequent Event [Member]
Financing Receivable, Past Due [Line Items]
Number of Loans | N	270
Loans resumed for contractual scheduled payments	$ 141,400
Subsequent Event [Member] | Payment Deferral [Member]
Financing Receivable, Past Due [Line Items]
Number of Loans | N	11
Loans resumed for contractual scheduled payments	$ 7,800
Subsequent Event [Member] | Loans Delinquent [Member]
Financing Receivable, Past Due [Line Items]
Number of Loans | N	2
Loans resumed for contractual scheduled payments	$ 1,500
Subsequent Event [Member] | Loans Delinquent One [Member]
Financing Receivable, Past Due [Line Items]
Loans resumed for contractual scheduled payments	$ 1,400
Deliquency period of loan	90 days
Subsequent Event [Member] | Loans Delinquent Two [Member]
Financing Receivable, Past Due [Line Items]
Loans resumed for contractual scheduled payments	$ 113
Deliquency period of loan	30 days

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LOANS RECEIVABLE, NET (Schedule of Loans Receivable, Net) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	$ 611,259	$ 523,001
Net deferred loan costs	(1,749)	104
Allowance for loan losses	(6,400)	(4,888)
Total loans receivable, net	603,110	518,217
One-to four-family residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	210,360	190,415
Allowance for loan losses	(1,035)	(731)
Commercial real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	248,134	232,544
Allowance for loan losses	(3,232)	(2,066)
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	28,242	28,451
Allowance for loan losses	(672)	(511)
Home equity lines of credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	19,373	17,832
Allowance for loan losses	(179)	(138)
Commercial business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	100,993	48,769
Allowance for loan losses	(1,034)	(1,184)
Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans and Leases Receivable, Gross	4,157	4,990
Allowance for loan losses	$ (1)	$ (8)

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LOANS RECEIVABLE, NET (Schedule of Impaired Loans by Class) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Financing Receivable, Impaired [Line Items]
Recorded Investment With Specific Allowance	$ 2,905
Related Allowance	221
Recorded Investment With No Specific Allowance	11,256	10,354
Total Recorded Investment	14,161	10,354
Total Unpaid Contractual Principal Balance	14,430	10,354
One-to four-family residential [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With Specific Allowance
Related Allowance
Recorded Investment With No Specific Allowance	2,601	1,405
Total Recorded Investment	2,601	1,405
Total Unpaid Contractual Principal Balance	2,601	1,405
Commercial real estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With Specific Allowance	599
Related Allowance	46
Recorded Investment With No Specific Allowance	3,806	4,593
Total Recorded Investment	4,405	4,593
Total Unpaid Contractual Principal Balance	4,405	4,593
Home equity lines of credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With Specific Allowance	2,306
Related Allowance	175
Recorded Investment With No Specific Allowance	2,835	2,900
Total Recorded Investment	5,141	2,900
Total Unpaid Contractual Principal Balance	5,206	2,900
Commercial business [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With Specific Allowance
Related Allowance
Recorded Investment With No Specific Allowance	2,014	1,456
Total Recorded Investment	2,014	1,456
Total Unpaid Contractual Principal Balance	$ 2,218	$ 1,456

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LOANS RECEIVABLE, NET (Schedule of Classes of the Loan Portfolio Summarized by Bank's Internal Risk Rating System) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Loans and Leases Receivable, Gross	$ 611,259	$ 523,001
Pass [Member]
Loans and Leases Receivable, Gross	596,259	514,008
Special Mention [Member]
Loans and Leases Receivable, Gross	2,801	1,409
Substandard [Member]
Loans and Leases Receivable, Gross	12,199	7,584
Doubtful [Member]
Loans and Leases Receivable, Gross
Other [Member]
Loans and Leases Receivable, Gross	4,157	4,990
Other [Member] | Pass [Member]
Loans and Leases Receivable, Gross	4,157	4,990
Other [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Other [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Other [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Commercial business [Member]
Loans and Leases Receivable, Gross	100,993	48,769
Commercial business [Member] | Pass [Member]
Loans and Leases Receivable, Gross	98,967	47,541
Commercial business [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross	178
Commercial business [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	1,848	1,228
Commercial business [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Home equity lines of credit [Member]
Loans and Leases Receivable, Gross	19,373	17,832
Home equity lines of credit [Member] | Pass [Member]
Loans and Leases Receivable, Gross	19,373	17,832
Home equity lines of credit [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Home equity lines of credit [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Home equity lines of credit [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Construction [Member]
Loans and Leases Receivable, Gross	28,242	28,451
Construction [Member] | Pass [Member]
Loans and Leases Receivable, Gross	23,101	25,551
Construction [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
Construction [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	5,141	2,900
Construction [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Commercial real estate [Member]
Loans and Leases Receivable, Gross	248,134	232,544
Commercial real estate [Member] | Pass [Member]
Loans and Leases Receivable, Gross	242,003	228,156
Commercial real estate [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross	2,623	1,409
Commercial real estate [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	3,508	2,979
Commercial real estate [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
One-to four-family residential [Member]
Loans and Leases Receivable, Gross	210,360	190,415
One-to four-family residential [Member] | Pass [Member]
Loans and Leases Receivable, Gross	208,658	189,938
One-to four-family residential [Member] | Special Mention [Member]
Loans and Leases Receivable, Gross
One-to four-family residential [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	1,702	477
One-to four-family residential [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross

XML

LOANS RECEIVABLE, NET (Schedule of Classes of the Loan Portfolio Summarized by Aging Categories) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	$ 600,512	$ 515,546
Total Past Due	10,747	7,455
Non - Accrual	9,732	6,894
Total loans receivable	611,259	523,001
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due		503
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,015	58
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	9,732	6,894
One-to four-family residential [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	209,455	190,301
Total Past Due	905	114
Non - Accrual	905	114
Total loans receivable	210,360	190,415
One-to four-family residential [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
One-to four-family residential [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
One-to four-family residential [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	905	114
Commercial real estate [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	245,029	229,331
Total Past Due	3,105	3,213
Non - Accrual	2,219	2,652
Total loans receivable	248,134	232,544
Commercial real estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due		503
Commercial real estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	886	58
Commercial real estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	2,219	2,652
Construction [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	23,101	25,551
Total Past Due	5,141	2,900
Non - Accrual	5,141	2,900
Total loans receivable	28,242	28,451
Construction [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Construction [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Construction [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	5,141	2,900
Home equity lines of credit [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	19,373	17,832
Total Past Due
Non - Accrual
Total loans receivable	19,373	17,832
Home equity lines of credit [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Home equity lines of credit [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Home equity lines of credit [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Commercial business [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	99,397	47,541
Total Past Due	1,596	1,228
Non - Accrual	1,467	1,228
Total loans receivable	100,993	48,769
Commercial business [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Commercial business [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	129
Commercial business [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,467	1,228
Other [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Current	4,157	4,990
Total Past Due
Non - Accrual
Total loans receivable	4,157	4,990
Other [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Other [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due
Other [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due

XML

LOANS RECEIVABLE, NET (Schedule of Activity in the Allowance for Loan Losses by Loan Category) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	$ 4,888	$ 4,200
Charge-offs	(269)	(101)
Recoveries	115	121
Provision (credit)	1,666	668
Balance at the end of period	6,400	4,888
One-to four-family residential [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	731	687
Charge-offs
Recoveries	11	120
Provision (credit)	293	(76)
Balance at the end of period	1,035	731
Commercial real estate [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	2,066	1,540
Charge-offs		(1)
Recoveries	5
Provision (credit)	1,161	527
Balance at the end of period	3,232	2,066
Construction [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	511	493
Charge-offs	(65)
Recoveries
Provision (credit)	226	18
Balance at the end of period	672	511
Home equity lines of credit [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	138	109
Charge-offs
Recoveries		1
Provision (credit)	41	28
Balance at the end of period	179	138
Commercial business [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	1,184	1,151
Charge-offs	(204)	(100)
Recoveries	99
Provision (credit)	(45)	133
Balance at the end of period	1,034	1,184
Other [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	8	25
Charge-offs
Recoveries
Provision (credit)	(7)	(17)
Balance at the end of period	1	8
Unallocated [Member]
Activity in the allowance for loan losses by loan category:
Balance at beginning of period	250	195
Charge-offs
Recoveries
Provision (credit)	(3)	55
Balance at the end of period	$ 247	$ 250

XML

LOANS RECEIVABLE, NET (Schedule of ALL by Loan Category) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Allowance for Loan Losses:
Balance - Allowance for loans losses	$ 6,400	$ 4,888
Individually evaluated for impairment	221
Collectively evaluated for impairment	6,179	4,888
Balance - Loans receivable	611,259	523,001
Loan balance individually evaluated for impairment	14,161	10,354
Loan balance collectively evaluated for impairment	597,098	512,647
One-to four-family residential [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	1,035	731
Individually evaluated for impairment
Collectively evaluated for impairment	1,035	731
Balance - Loans receivable	210,360	190,415
Loan balance individually evaluated for impairment	2,601	1,405
Loan balance collectively evaluated for impairment	207,759	189,010
Commercial real estate [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	3,232	2,066
Individually evaluated for impairment	46
Collectively evaluated for impairment	3,186	2,066
Balance - Loans receivable	248,134	232,544
Loan balance individually evaluated for impairment	4,405	4,593
Loan balance collectively evaluated for impairment	243,729	227,951
Construction [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	672	511
Individually evaluated for impairment	175
Collectively evaluated for impairment	497	511
Balance - Loans receivable	28,242	28,451
Loan balance individually evaluated for impairment	5,141	2,900
Loan balance collectively evaluated for impairment	23,101	25,551
Home equity lines of credit [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	179	138
Individually evaluated for impairment
Collectively evaluated for impairment	179	138
Balance - Loans receivable	19,373	17,832
Loan balance individually evaluated for impairment
Loan balance collectively evaluated for impairment	19,373	17,832
Commercial business [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	1,034	1,184
Individually evaluated for impairment
Collectively evaluated for impairment	1,034	1,184
Balance - Loans receivable	100,993	48,769
Loan balance individually evaluated for impairment	2,014	1,456
Loan balance collectively evaluated for impairment	98,979	47,313
Other [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	1	8
Individually evaluated for impairment
Collectively evaluated for impairment	1	8
Balance - Loans receivable	4,157	4,990
Loan balance individually evaluated for impairment
Loan balance collectively evaluated for impairment	4,157	4,990
Unallocated [Member]
Allowance for Loan Losses:
Balance - Allowance for loans losses	247	250
Individually evaluated for impairment
Collectively evaluated for impairment	247	250
Balance - Loans receivable
Loan balance individually evaluated for impairment
Loan balance collectively evaluated for impairment

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LOANS RECEIVABLE, NET (Schedule of Troubled Debt Restructuring) (Details) $ in Thousands	12 Months Ended
	Sep. 30, 2020 USD ($) N	Sep. 30, 2019 USD ($) N
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	1	1
Investment Before TDR Modification	$ 252	$ 260
Investment After TDR Modification	$ 220	$ 363
Commercial business [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	1
Investment Before TDR Modification	$ 252
Investment After TDR Modification	$ 220
One-to four-family residential [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N		1
Investment Before TDR Modification		$ 260
Investment After TDR Modification		$ 363

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LOANS RECEIVABLE, NET (Schedule of Type of Loan) (Details) $ in Thousands	12 Months Ended
	Sep. 30, 2020 USD ($) N
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	283
Balance | $	$ 150,691
One-to four-family residential [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	94	[1]
Balance | $	$ 24,573	[1]
Commercial real estate [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	145
Balance | $	$ 115,358
Construction [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	4
Balance | $	$ 2,630
Home equity lines of credit [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	8
Balance | $	$ 1,238
Commercial business [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | N	32
Balance | $	$ 6,892

[1] Includes home equity loans.

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ACCRUED INTEREST RECEIVABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Accrued interest receivable	$ 4,030	$ 2,133
Loans [Member]
Accrued interest receivable	3,943	2,005
Investment Securities [Member]
Accrued interest receivable	22	47
Mortgage-backed Securities [Member]
Accrued interest receivable	$ 65	$ 81

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PREMISES AND EQUIPMENT (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Depreciation expense	$ 854	$ 871
Premises and equipment, net	14,746	16,172
Hungaria Urban Renewal [Member] | Land [Member]
Premises and equipment, net	3,100	3,100
Hungaria Urban Renewal [Member] | Buildings and Improvements [Member]
Premises and equipment, net	$ 8,600	$ 9,000

XML

PREMISES AND EQUIPMENT (Schedule of Premises and Equipment) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Property, Plant and Equipment, Gross	$ 28,840	$ 29,635
Less accumulated depreciation	(14,094)	(13,463)
Premises and equipment, net	14,746	16,172
Buildings and Improvements [Member]
Property, Plant and Equipment, Gross	$ 21,622	22,524
Buildings and Improvements [Member] | Minimum [Member]
Estimated Useful Lives	10 years
Buildings and Improvements [Member] | Maximum [Member]
Estimated Useful Lives	40 years
Furniture, Fixtures and Equipment [Member]
Property, Plant and Equipment, Gross	$ 3,407	3,300
Furniture, Fixtures and Equipment [Member] | Minimum [Member]
Estimated Useful Lives	5 years
Furniture, Fixtures and Equipment [Member] | Maximum [Member]
Estimated Useful Lives	10 years
Land [Member]
Property, Plant and Equipment, Gross	$ 3,811	$ 3,811

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OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
OTHER REAL ESTATE OWNED [Abstract].
Other real estate owned ("OREO")	$ 2,594	$ 7,528
Write-downs on other real estate owned	$ 371	$ 212

XML

DEPOSITS (Narrative) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Deposits [Abstract]
Aggregate of deposit accounts with a minimum denomination of $250,000	$ 365,600	$ 298,800
Aggregated of certificate deposits with balance greater than $250,000	$ 45,600	$ 35,000

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DEPOSITS (Schedule of Deposits by Type of Account) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Deposits [Abstract]
Demand accounts	$ 163,562	$ 106,422
Savings accounts	74,923	70,598
NOW accounts	65,447	48,164
Money market accounts	188,023	188,115
Certificates of deposit	110,650	100,016
Retirement accounts	15,725	16,760
Total deposits	$ 618,330	$ 530,075

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DEPOSITS (Schedule of Contractual Maturities of Certificate of Deposit) (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Year Ending September 30,
2021	$ 79,120
2022	26,209
2023	8,738
2024	6,377
2025 and after	5,931
Total	$ 126,375

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BORROWINGS (Narrative) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Federal advances	$ 67,410	$ 36,189
FHLBNY [Member]
Federal advances	$ 30,486	$ 36,189
Weighted average interest rate	2.09%	2.26%
Available credit from FHLBNY	$ 61,300	$ 76,700
Federal Reserve Bank of New York Advances [Member]
Federal advances	$ 36,924
Weighted average interest rate	0.35%

XML

BORROWINGS (Schedule of Long Term FHLBNY Advances) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Year Ending September 30,
Total	$ 67,410	$ 36,189
FHLBNY [Member]
Year Ending September 30,
2021	7,130
2022	10,731
2023	4,741
2024	4,384
2025	3,500
Thereafter
Total	$ 30,486	$ 36,189

XML

BORROWINGS (Schedule of Short-Term Arrangements With the FHLBNY) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Balance at end of year
Weighted average balance during the year		743
Maximum month-end balance during the year		$ 16,800
Average interest rate during the year		2.45%

XML

BORROWINGS (Schedule of PPPLF advances from the FRBNY) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Year Ending September 30,
Total	$ 67,410	$ 36,189
Paycheck Protection Program Liquidity Facility Advances [Member]
Year Ending September 30,
2021
2022	36,924
2023
2024
2025
Thereafter
Total	$ 36,924

XML

SERVICING POLICY (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Transfers and Servicing [Abstract]
Loans sold with servicing retained	$ 3,900	$ 2,900
Loans sold, servicing released	0	0
Value of loans sold still being serviced	5,200	7,200
SBA Loans being serviced	$ 22,200	$ 24,600

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SERVICING POLICY (Schedule of Activity in Mortgage Servicing Rights) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Transfers and Servicing [Abstract]
Mortgage servicing rights, beginning balance	$ 26	$ 45
Origination of mortgage servicing rights
Amortization	(14)	(19)
Mortgage servicing rights, ending balance	$ 12	$ 26

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INCOME TAXES (Narrative) (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended	24 Months Ended		39 Months Ended
	Jan. 02, 2018	Sep. 30, 2020	Dec. 31, 2021	Dec. 31, 2019	Dec. 31, 2023
Income Tax Contingency [Line Items]
State tax rate		11.50%		2.50%
Allocated income in excess in income taxes	$ 1,000
Subsequent Event [Member]
Income Tax Contingency [Line Items]
State tax rate			1.50%		2.50%

XML

INCOME TAXES (Schedule of Components of Income Tax Expense) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Income tax expense at the statutory federal tax rate of 21% for the year ended September 30, 2020 and 2019, respectively	$ 653	$ 895
State tax expense	323	397
Other	(55)	(27)
Income tax expense	$ 921	$ 1,265

XML

INCOME TAXES (Schedule of Reconciliation of Income Tax) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Reconciliation of income tax
Income tax expense at statutory rate	$ 653	$ 895
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	323	397
Tax-exempt income, net	(68)	(64)
Nondeductible expenses	18	26
Employee stock ownership plan	(5)	2
Other, net		9
Income tax expense	$ 921	$ 1,265

XML

INCOME TAXES (Schedule of Major Sources of Temporary Differences and Their Deferred Tax Effect) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Temporary Differences and Deferred Tax Effect
Allowance for loan losses	$ 1,799	$ 1,374
Deferred loan fees	731	76
Unrealized loss, minimum pension liability	620	537
OREO	73	424
Straight line rent	110	118
Gross deferred tax asset	3,333	2,529
Depreciation	(872)	(931)
Discount accretion on investments	(61)	(89)
Employee benefits	(37)	(107)
Net unrealized gain, investment securities available-for-sale		(17)
Mortgage servicing rights	(3)	(7)
Gross deferred tax liability	(973)	(1,151)
Net deferred tax asset	$ 2,360	$ 1,378

XML

PENSION PLAN (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Long-term investment objective, equities	65.00%
Long-term investment objective, debt	35.00%
Funding guidelines, description	Asset rebalancing is performed at least annually, with interim adjustments made when the investment mix varies more than 5% from the target (i.e., a 10% target range).
Weighted average discount rate used to calculate net periodic pension cost	3.25%	4.25%
Weighted average discount rate	2.75%	3.25%
Expected long-term rate of return on assets	6.25%	6.50%
Inflation rate	2.50%
Expected contributions	$ 0
Actuarial losses	2,060	$ 1,910
Acturial losses, income tax effects	620	$ 537
Acturial losses expected to be amortized within next year	$ 205
Minimum [Member]
Expected long-term rate of return on assets	5.00%
Maximum [Member]
Expected long-term rate of return on assets	7.00%
Equity Securities [Member] | Minimum [Member]
Expected long-term rate of return on assets	6.00%
Target asset allocation	40.00%
Equity Securities [Member] | Maximum [Member]
Expected long-term rate of return on assets	8.00%
Target asset allocation	70.00%
Fixed Income Securities [Member] | Minimum [Member]
Expected long-term rate of return on assets	3.00%
Fixed Income Securities [Member] | Maximum [Member]
Expected long-term rate of return on assets	5.00%
Debt Securities [Member] | Minimum [Member]
Target asset allocation	30.00%
Debt Securities [Member] | Maximum [Member]
Target asset allocation	60.00%

XML

PENSION PLAN (Schedule of Plan's Funded Status and Amounts Recognized) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Retirement Benefits [Abstract]
Actuarial present value of benefit obligations	$ 4,990	$ 4,990	$ 5,227	$ 4,990
Change in benefit obligations
Projected benefit obligation, beginning	4,990	4,390
Interest cost	158	182
Actuarial (gain) loss	278	614
Annuity payments and lump sum distributions	(199)	(196)
Projected benefit obligation, end	5,227	4,990
Change in plan assets
Fair value of assets, beginning	3,581	3,403
Actual return on plan assets	172	124
Employer contributions	25	250
Annuity payments and lump sum distributions	(199)	(196)
Fair value of assets, end	$ 3,579	$ 3,581
Funded status included with other liabilities			$ (1,648)	$ (1,409)

XML

PENSION PLAN (Schedule of Net Pension Cost) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Retirement Benefits [Abstract]
Service cost benefits earned during the year
Interest cost on projected benefit obligation	158	182
Expected return on plan assets	(225)	(233)
Amortization of unrecognized net loss	181	105
Net pension cost	$ 114	$ 54

XML

PENSION PLAN (Schedule of Pension Plan Weighted-Average Asset Allocations) (Details)	Sep. 30, 2020	Sep. 30, 2019
Weighted average asset allocation (percentage)	100.00%	100.00%
Equity Securities [Member]
Weighted average asset allocation (percentage)	64.00%	61.00%
Debt Securities [Member]
Weighted average asset allocation (percentage)	35.00%	36.00%
Money Market Funds [Member]
Weighted average asset allocation (percentage)	1.00%	3.00%

XML

PENSION PLAN (Schedule of Expected Benefit Payments) (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Estimated Future Benefit Payments
October 1, 2020 through September 30, 2021	$ 225
October 1, 2021 through September 30, 2022	226
October 1, 2022 through September 30, 2023	230
October 1, 2023 through September 30, 2024	246
October 1, 2024 through September 30, 2025	245
October 1, 2025 through September 30, 2030	1,286
Total	$ 2,458

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PENSION PLAN (Schedule of Fair Value Measurements of Plan Assets) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Investments	$ 3,579	$ 3,581
Large-Cap Value [Member]
Investments	468	484
Large-Cap Core [Member]
Investments	576	500
Mid-Cap Core [Member]
Investments	220	205
Small-Cap Core [Member]
Investments	196	193
Non-U.S. Core [Member]
Investments	833	802
Intermediate-Term Core [Member]
Investments	1,241	1,304
Money Market Funds [Member]
Investments	45	93
Fair Value, Inputs, Level 1 [Member]
Investments	3,579	3,581
Fair Value, Inputs, Level 1 [Member] | Large-Cap Value [Member]
Investments	468	484
Fair Value, Inputs, Level 1 [Member] | Large-Cap Core [Member]
Investments	576	500
Fair Value, Inputs, Level 1 [Member] | Mid-Cap Core [Member]
Investments	220	205
Fair Value, Inputs, Level 1 [Member] | Small-Cap Core [Member]
Investments	196	193
Fair Value, Inputs, Level 1 [Member] | Non-U.S. Core [Member]
Investments	833	802
Fair Value, Inputs, Level 1 [Member] | Intermediate-Term Core [Member]
Investments	1,241	1,304
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]
Investments	45	93
Fair Value, Inputs, Level 2 [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Large-Cap Value [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Large-Cap Core [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Mid-Cap Core [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Small-Cap Core [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Non-U.S. Core [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Intermediate-Term Core [Member]
Investments
Fair Value, Inputs, Level 2 [Member] | Money Market Funds [Member]
Investments
Fair Value, Inputs, Level 3 [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Large-Cap Value [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Large-Cap Core [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Mid-Cap Core [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Small-Cap Core [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Non-U.S. Core [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Intermediate-Term Core [Member]
Investments
Fair Value, Inputs, Level 3 [Member] | Money Market Funds [Member]
Investments

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NONQUALIFIED COMPENSATION PLAN (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Postemployment Benefits [Abstract]
Life Insurance Contracts, Value	$ 13,971	$ 13,647

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401(K) EMPLOYEE CONTRIBUTION PLAN (Narrative) (Details) - USD ($)	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Deferred Compensation Arrangements [Abstract]
Employer's contribution to the plan	$ 175,000	$ 175,000

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COMMITMENTS (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Oct. 02, 2019
Lessee, Lease, Description [Line Items]
Operating lease right-of-use asset and liability			$ 3,800
Rental Expense	$ 802	$ 791
Minimum [Member]
Lessee, Lease, Description [Line Items]
Remaining lease term	10 years
Maximum [Member]
Lessee, Lease, Description [Line Items]
Remaining lease term	11 years

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COMMITMENTS (Schedule of Lease Commitments) (Details) $ in Thousands	Sep. 30, 2020 USD ($)
September 30,
September 30, 2021	$ 705
September 30, 2022	592
September 30, 2023	599
September 30, 2024	602
September 30, 2025	378
Thereafter	1,208
Total	$ 4,084

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COMMITMENTS (Schedule of Balance Sheet Information Related to Leases) (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Operating lease right-of-use asset	$ 3,240
Operating lease liabilities	$ 3,631
Weighted average remaining lease term in years	7 years 6 months
Weighted average discount rate	2.20%

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COMMITMENTS (Schedule of Maturity of Remaining Lease Liabilities) (Details) $ in Thousands	Sep. 30, 2020 USD ($)
For the Year Ending:
2021	$ 705
2022	595
2023	602
2024	602
2025	378
2026 and thereafter	1,150
Total lease payments	4,032
Less imputed interest	(401)
Present value of lease liabilities	$ 3,631

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FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Schedule of Financial Instruments Whose Contract Amounts Representing Credit Risk) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments - contract amounts	$ 100,777	$ 73,223
Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments - contract amounts	1,041	1,315
Unused lines of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments - contract amounts	78,632	56,405
Loan Origination Commitments [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments - contract amounts	5,240	3,362
Loan Origination Commitments One [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments - contract amounts	$ 15,864	$ 12,141

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FAIR VALUE DISCLOSURES (Narrative) (Details)	12 Months Ended
	Sep. 30, 2020 USD ($)
Other Real Estate Owned [Member]
Cumulative write-down of impaired loans	$ 371,000

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FAIR VALUE DISCLOSURES (Schedule of Assets Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Fair value measured on recurring basis:
Securities available for sale	$ 14,561	$ 16,703
Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Fair value measured on recurring basis:
Securities available for sale	9,194	14,708
Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Fair value measured on recurring basis:
Securities available for sale	5,003	1,500
Fair Value, Measurements, Recurring [Member]
Fair value measured on recurring basis:
Securities available for sale	14,561	16,703
Fair Value, Measurements, Recurring [Member] | Obligations of U.S. government enterprises Mortgage-backed securities-residential [Member]
Fair value measured on recurring basis:
Securities available for sale	364	495
Fair Value, Measurements, Recurring [Member] | Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Fair value measured on recurring basis:
Securities available for sale	9,194	14,708
Fair Value, Measurements, Recurring [Member] | Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Fair value measured on recurring basis:
Securities available for sale	5,003	1,500
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Obligations of U.S. government enterprises Mortgage-backed securities-residential [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair value measured on recurring basis:
Securities available for sale	14,561	16,703
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Obligations of U.S. government enterprises Mortgage-backed securities-residential [Member]
Fair value measured on recurring basis:
Securities available for sale	364	495
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Fair value measured on recurring basis:
Securities available for sale	9,194	14,708
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Fair value measured on recurring basis:
Securities available for sale	5,003	1,500
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Obligations of U.S. government enterprises Mortgage-backed securities-residential [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Obligations of U.S. government-sponsored enterprises Mortgage backed securities - residential [Member]
Fair value measured on recurring basis:
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Obligations of U.S. government-sponsored enterprises Debt securities [Member]
Fair value measured on recurring basis:
Securities available for sale

XML

FAIR VALUE DISCLOSURES (Schedule of Assets Measured at Fair Value on a Non-Recurring Basis) (Details) - Fair Value Measured on a Nonrecurring Basis [Member] - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 11,874	$ 6,835
Other real estate owned	2,594	7,528
Total	14,468	14,363
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans
Other real estate owned
Total
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans
Other real estate owned
Total
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	11,874	6,835
Other real estate owned	2,594	7,528
Total	$ 14,468	$ 14,363

XML

FAIR VALUE DISCLOSURES (Schedule of Additional Quantitative Information About Assets Measured at Fair Value) (Details) - USD ($) $ in Thousands		12 Months Ended
		Sep. 30, 2020	Sep. 30, 2019
Fair Value Measured on a Nonrecurring Basis [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value estimate		$ 14,468	$ 14,363
Impaired Loans [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Valuation techniques and Unobservable Input	[1]	Appraisal of collateral; Appraisal adjustments	Appraisal of collateral; Appraisal adjustments
Impaired Loans [Member] | Fair Value Measured on a Nonrecurring Basis [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value estimate		$ 11,874	$ 6,835
Impaired Loans [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		0.00%	(1.90%)
Impaired Loans [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		(50.00%)	(67.20%)
Impaired Loans [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		(11.60%)	(25.00%)
Other Real Estate Owned [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Valuation techniques and Unobservable Input	[2]	Appraisal of collateral; Liquidation expenses	Appraisal of collateral; Liquidation expenses
Other Real Estate Owned [Member] | Fair Value Measured on a Nonrecurring Basis [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value estimate		$ 2,594	$ 7,528
Other Real Estate Owned [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		(6.00%)	(9.20%)
Other Real Estate Owned [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		(27.40%)	(48.50%)
Other Real Estate Owned [Member] | Fair Value Measured on a Nonrecurring Basis [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair value input- appraisal of collateral		(14.70%)	(19.40%)

[1] Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

[2] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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FAIR VALUE DISCLOSURES (Schedule of the Carrying Amount, Fair Value, and Placement in the Fair Value Hierarchy of Financial Instruments) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Financial instruments - assets
Investment securities held-to-maturity	$ 30,443	$ 29,481
Fair Value, Inputs, Level 1 [Member]
Financial instruments - assets
Investment securities held-to-maturity
Loans
Financial instruments - liabilities
Certificates of deposit
Borrowings
Fair Value, Inputs, Level 2 [Member]
Financial instruments - assets
Investment securities held-to-maturity	30,899	29,344
Loans
Financial instruments - liabilities
Certificates of deposit	128,590	117,730
Borrowings	68,386	36,583
Fair Value, Inputs, Level 3 [Member]
Financial instruments - assets
Investment securities held-to-maturity
Loans	617,418	527,088
Financial instruments - liabilities
Certificates of deposit
Borrowings
Reported Value [Member]
Financial instruments - assets
Investment securities held-to-maturity	30,443	29,481
Loans	603,110	518,217
Financial instruments - liabilities
Certificates of deposit	126,375	116,776
Borrowings	67,410	36,189
Fair Value [Member]
Financial instruments - assets
Investment securities held-to-maturity	30,899	29,344
Loans	617,418	527,088
Financial instruments - liabilities
Certificates of deposit	128,590	117,730
Borrowings	$ 68,386	$ 36,583

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REGULATORY CAPITAL (Details)		Sep. 30, 2020	Sep. 30, 2019
Magyar Bancorp, Inc. [Member]
Tier 1 leverage ratio
Tier 1 leverage ratio (to average assets) ratio		7.84%	8.94%
Common Equity Tier 1 Capital (to risk-weighted assets) ratio		11.84%	11.84%
Tier 1 risk-based capital ratio
Tier 1 risk-based capital ratio (to risk-weighted assets) ratio		11.84%	11.84%
Total risk-based capital ratio
Total risk-based capital ratio (to risk-weighted assets) ratio		13.09%	12.88%
Magyar Bank [Member]
Tier 1 leverage ratio
Tier 1 leverage ratio (to average assets) ratio		8.30%	9.03%
Required amount of Tier 1 Capital for adequacy purposes effective, ratio		4.00%	4.00%
Minimum Tier 1 Capital required to be well-capitalized, ratio		5.00%	5.00%
Common Equity Tier 1 Capital (to risk-weighted assets) ratio		11.93%	11.96%
Required amount of common equity Tier 1 Capital for adequacy purposes effective, ratio	[1]	7.00%	7.00%
Minimum common equity Tier 1 Capital required to be well-capitalized, ratio		6.50%	6.50%
Tier 1 risk-based capital ratio
Tier 1 risk-based capital ratio (to risk-weighted assets) ratio		11.93%	11.96%
Required amount of Tier 1 Capital for adequacy purposes effective, ratio	[1]	8.50%	8.50%
Minimum Tier 1 Capital required to be well-capitalized, ratio		8.00%	8.00%
Total risk-based capital ratio
Total risk-based capital ratio (to risk-weighted assets) ratio		13.18%	12.99%
Required amount of capital for adequacy purposes effective, ratio	[1]	10.50%	10.50%
Minimum Capital required to be well-capitalized, ratio		10.00%	10.00%

[1] Includes 2.50% capital conservation buffer