UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2023
☐ TRANSITION
REPORT PURSUANT TO 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 each class | Trading symbol | Name of each exchange on which registered |
Common Stock, $.01 per share | MGYR | The NASDAQ Global Market |
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 of 1934 during the past 12 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 ☑ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted posted 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 ☑ No ☐
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Securities Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☑ | Smaller reporting company | ☑ |
Emerging growth company | ☐ | | |
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 Securities Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares outstanding of the issuer's common
stock at February 1, 2024 was 6,653,933.
MAGYAR BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
| |
December 31, | | |
September 30, | |
| |
2023 | | |
2023 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
Cash | |
$ | 3,128 | | |
$ | 3,179 | |
Interest earning deposits with banks | |
| 47,989 | | |
| 69,353 | |
Total cash and cash equivalents | |
| 51,117 | | |
| 72,532 | |
| |
| | | |
| | |
Investment securities - available for sale, at fair value | |
| 12,273 | | |
| 10,125 | |
Investment securities - at amortized cost (fair value of $75,508 and $73,728 at December 31, 2023 and September 30, 2023, respectively) | |
| 84,333 | | |
| 85,835 | |
Federal Home Loan Bank of New York stock, at cost | |
| 2,254 | | |
| 2,286 | |
Loans receivable | |
| 728,560 | | |
| 697,400 | |
Allowance for credit losses | |
| (7,683 | ) | |
| (8,330 | ) |
Bank owned life insurance | |
| 18,126 | | |
| 18,030 | |
Accrued interest receivable | |
| 4,585 | | |
| 4,337 | |
Premises and equipment, net | |
| 12,534 | | |
| 13,339 | |
Other real estate owned ("OREO") | |
| 328 | | |
| 328 | |
Other assets | |
| 10,312 | | |
| 11,410 | |
| |
| | | |
| | |
Total assets | |
$ | 916,739 | | |
$ | 907,292 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
Liabilities | |
| | | |
| | |
Deposits | |
$ | 763,548 | | |
$ | 755,453 | |
Escrowed funds | |
| 3,723 | | |
| 3,494 | |
Borrowings | |
| 28,796 | | |
| 29,515 | |
Accrued interest payable | |
| 656 | | |
| 443 | |
Accounts payable and other liabilities | |
| 13,477 | | |
| 13,597 | |
| |
| | | |
| | |
Total liabilities | |
| 810,200 | | |
| 802,502 | |
| |
| | | |
| | |
Stockholders' equity | |
| | | |
| | |
Preferred stock: $.01 Par Value, 500,000 shares authorized; at December 31, 2023 and September 30, 2023, none issued | |
| — | | |
| — | |
Common stock: $.01 Par Value, 14,000,000 shares authorized; 7,097,825 shares issued; 6,654,952 and 6,674,184 shares outstanding | |
| | | |
| | |
at December 31, 2023 and September 30, 2023, respectively, at cost | |
| 71 | | |
| 71 | |
Additional paid-in capital | |
| 62,962 | | |
| 62,801 | |
Treasury stock: 442,873 and 423,641 shares at December 31, 2023 and September 30, 2023, respectively, at cost | |
| (5,554 | ) | |
| (5,362 | ) |
Unearned Employee Stock Ownership Plan shares | |
| (3,047 | ) | |
| (3,097 | ) |
Retained earnings | |
| 53,456 | | |
| 52,166 | |
Accumulated other comprehensive loss | |
| (1,349 | ) | |
| (1,789 | ) |
| |
| | | |
| | |
Total stockholders' equity | |
| 106,539 | | |
| 104,790 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
$ | 916,739 | | |
$ | 907,292 | |
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(In Thousands, Except Share
and Per Share Data)
| |
Three Months Ended | |
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
(Unaudited) | |
Interest and dividend income | |
| | | |
| | |
Loans, including fees | |
$ | 10,082 | | |
$ | 7,959 | |
Investment securities | |
| | | |
| | |
Taxable | |
| 1,406 | | |
| 504 | |
Tax-exempt | |
| 14 | | |
| 14 | |
Federal Home Loan Bank of New York stock | |
| 55 | | |
| 24 | |
Total interest and dividend income | |
| 11,557 | | |
| 8,501 | |
| |
| | | |
| | |
Interest expense | |
| | | |
| | |
Deposits | |
| 4,077 | | |
| 1,474 | |
Borrowings | |
| 236 | | |
| 136 | |
Total interest expense | |
| 4,313 | | |
| 1,610 | |
| |
| | | |
| | |
Net interest and dividend income | |
| 7,244 | | |
| 6,891 | |
| |
| | | |
| | |
Provision for credit losses- loans | |
| 384 | | |
| 317 | |
Provision for credit losses- commitments | |
| 97 | | |
| — | |
| |
| | | |
| | |
Net interest and dividend income after provision for credit losses | |
| 6,763 | | |
| 6,574 | |
| |
| | | |
| | |
Other income | |
| | | |
| | |
Service charges | |
| 303 | | |
| 245 | |
Income on bank owned life insurance | |
| 95 | | |
| 95 | |
Interest rate swap fees | |
| — | | |
| 57 | |
Gains on sales of premises and equipment | |
| 60 | | |
| — | |
Other operating income | |
| 22 | | |
| 20 | |
Gains on sales of loans | |
| 129 | | |
| 180 | |
Total other income | |
| 609 | | |
| 597 | |
| |
| | | |
| | |
Other expenses | |
| | | |
| | |
Compensation and employee benefits | |
| 2,847 | | |
| 2,621 | |
Occupancy expenses | |
| 790 | | |
| 761 | |
Professional fees | |
| 226 | | |
| 179 | |
Data processing expenses | |
| 140 | | |
| 146 | |
Director fees and benefits | |
| 224 | | |
| 201 | |
Marketing and business development | |
| 97 | | |
| 126 | |
FDIC deposit insurance premiums | |
| 103 | | |
| 54 | |
Other expenses | |
| 593 | | |
| 493 | |
Total other expenses | |
| 5,020 | | |
| 4,581 | |
Income before income tax expense | |
| 2,352 | | |
| 2,590 | |
Income tax expense | |
| 700 | | |
| 780 | |
Net income | |
$ | 1,652 | | |
$ | 1,810 | |
| |
| | | |
| | |
Earnings per share - basic | |
$ | 0.26 | | |
$ | 0.28 | |
Earnings per share - diluted | |
$ | 0.26 | | |
$ | 0.28 | |
Weighted average shares outstanding - basic | |
| 6,387,010 | | |
| 6,456,525 | |
Weighted average shares outstanding - diluted | |
| 6,387,010 | | |
| 6,459,446 | |
The accompanying notes are
an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(In Thousands)
| |
Three Months Ended | |
| |
December 31 | |
| |
2023 | | |
2022 | |
| |
(Unaudited) | |
Net income | |
$ | 1,652 | | |
$ | 1,810 | |
Other comprehensive income | |
| | | |
| | |
Unrealized gains on securities available for sale | |
| 584 | | |
| 206 | |
Other comprehensive income, before tax | |
| 584 | | |
| 206 | |
Deferred income tax effect | |
| (144 | ) | |
| (50 | ) |
Total other comprehensive income | |
$ | 440 | | |
$ | 156 | |
Total comprehensive income | |
$ | 2,092 | | |
$ | 1,966 | |
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended December 31, 2023 and 2022
(In Thousands, Except for Share and Per-Share Amounts)
| |
| | |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
Common Stock | | |
Additional | | |
| | |
Unearned | | |
| | |
Other | | |
| |
| |
Shares | | |
Par | | |
Paid-In | | |
Treasury | | |
ESOP | | |
Retained | | |
Comprehensive | | |
| |
| |
Outstanding | | |
Value | | |
Capital | | |
Stock | | |
Shares | | |
Earnings | | |
Loss | | |
Total | |
| |
(Unaudited) | |
Balance, September 30, 2023 | |
| 6,674,184 | | |
$ | 71 | | |
$ | 62,801 | | |
$ | (5,362 | ) | |
$ | (3,097 | ) | |
$ | 52,166 | | |
$ | (1,789 | ) | |
$ | 104,790 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,652 | | |
| — | | |
| 1,652 | |
Dividends paid on common stock ($0.11 per share) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (716 | ) | |
| — | | |
| (716 | ) |
Effect of adopting ASU 2016-13 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 354 | | |
| — | | |
| 354 | |
Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 440 | | |
| 440 | |
ESOP shares allocated | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50 | | |
| — | | |
| — | | |
| 50 | |
Purchase of treasury stock | |
| (19,232 | ) | |
| — | | |
| — | | |
| (192 | ) | |
| — | | |
| — | | |
| — | | |
| (192 | ) |
Stock-based compensation expense | |
| — | | |
| — | | |
| 161 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 161 | |
Balance, December 31, 2023 | |
| 6,654,952 | | |
$ | 71 | | |
$ | 62,962 | | |
$ | (5,554 | ) | |
$ | (3,047 | ) | |
$ | 53,456 | | |
$ | (1,349 | ) | |
$ | 106,539 | |
The accompanying notes are an integral part of these consolidated financial statements.
| |
| | |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| |
| |
Common Stock | | |
Additional | | |
| | |
Unearned | | |
| | |
Other | | |
| |
| |
Shares | | |
Par | | |
Paid-In | | |
Treasury | | |
ESOP | | |
Retained | | |
Comprehensive | | |
| |
| |
Outstanding | | |
Value | | |
Capital | | |
Stock | | |
Shares | | |
Earnings | | |
Loss | | |
Total | |
| |
(Unaudited) | |
Balance, September 30, 2022 | |
| 6,745,128 | | |
$ | 71 | | |
$ | 63,734 | | |
$ | (5,793 | ) | |
$ | (3,169 | ) | |
$ | 45,773 | | |
$ | (2,114 | ) | |
$ | 98,502 | |
Net income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,810 | | |
| — | | |
| 1,810 | |
Dividends paid on common stock ($0.11 per share) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (744 | ) | |
| — | | |
| (744 | ) |
Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 156 | | |
| 156 | |
ESOP shares allocated | |
| — | | |
| — | | |
| 17 | | |
| — | | |
| 24 | | |
| — | | |
| — | | |
| 41 | |
Purchase of treasury stock | |
| (2,194 | ) | |
| — | | |
| — | | |
| (27 | ) | |
| — | | |
| — | | |
| — | | |
| (27 | ) |
Stock-based compensation expense | |
| — | | |
| — | | |
| 180 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 180 | |
Balance, December 31, 2022 | |
| 6,742,934 | | |
$ | 71 | | |
$ | 63,931 | | |
$ | (5,820 | ) | |
$ | (3,145 | ) | |
$ | 46,839 | | |
$ | (1,958 | ) | |
$ | 99,918 | |
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
| |
For the Three Months Ended | |
| |
December 31, | |
| |
2023 | | |
2022 | |
| |
(Unaudited) | |
Operating activities | |
| | | |
| | |
Net income | |
$ | 1,652 | | |
$ | 1,810 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation expense | |
| 217 | | |
| 208 | |
Premium amortization on investment securities, net | |
| 20 | | |
| 43 | |
Provision for credit losses | |
| 481 | | |
| 317 | |
Originations of SBA loans held for sale | |
| (1,613 | ) | |
| (1,825 | ) |
Proceeds from the sales of SBA loans | |
| 1,741 | | |
| 2,005 | |
Gains on sale of loans | |
| (129 | ) | |
| (180 | ) |
Gains on the sale of premises and equipment | |
| (60 | ) | |
| — | |
ESOP compensation expense | |
| 50 | | |
| 41 | |
Stock-based compensation expense | |
| 161 | | |
| 180 | |
Deferred income tax expense (benefit) | |
| 221 | | |
| (237 | ) |
Increase in accrued interest receivable | |
| (248 | ) | |
| (348 | ) |
Increase in surrender value of bank owned life insurance | |
| (95 | ) | |
| (95 | ) |
Decrease in other assets | |
| 733 | | |
| 160 | |
Increase in accrued interest payable | |
| 213 | | |
| 77 | |
Decrease in accounts payable and other liabilities | |
| (120 | ) | |
| (821 | ) |
Net cash provided by operating activities | |
| 3,224 | | |
| 1,335 | |
| |
| | | |
| | |
Investing activities | |
| | | |
| | |
Net increase in loans receivable | |
| (31,934 | ) | |
| (46,554 | ) |
Purchases of investment securities held-to-maturity | |
| (2,000 | ) | |
| — | |
Purchases of investment securities available-for-sale | |
| (1,953 | ) | |
| — | |
Principal repayments on investment securities held-to-maturity | |
| 3,487 | | |
| 992 | |
Principal repayments on investment securities available-for-sale | |
| 384 | | |
| 209 | |
Purchases of premises and equipment, net | |
| (128 | ) | |
| (10 | ) |
Proceeds from the sale of land | |
| 776 | | |
| — | |
Investment in other real estate owned | |
| — | | |
| (11 | ) |
Purchase of Federal Home Loan Bank stock | |
| (76 | ) | |
| (2,582 | ) |
Redemption of Federal Home Loan Bank stock | |
| 108 | | |
| 1,923 | |
Net cash used in investing activities | |
| (31,336 | ) | |
| (46,033 | ) |
Financing activities | |
| | | |
| | |
Net increase in deposits | |
| 8,095 | | |
| 8,350 | |
Net increase in escrowed funds | |
| 229 | | |
| (39 | ) |
Proceeds from long-term advances | |
| 1,690 | | |
| 3,000 | |
Repayments of long-term advances | |
| (2,409 | ) | |
| — | |
Net change in short-term advances | |
| — | | |
| 11,100 | |
Cash dividends paid on common stock | |
| (716 | ) | |
| (744 | ) |
Purchase of treasury stock | |
| (192 | ) | |
| (27 | ) |
Net cash provided by financing activities | |
| 6,697 | | |
| 21,640 | |
Net decrease in cash and cash equivalents | |
| (21,415 | ) | |
| (23,058 | ) |
Cash and cash equivalents, beginning of period | |
| 72,532 | | |
| 30,936 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 51,117 | | |
$ | 7,878 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information | |
| | | |
| | |
Cash paid for | |
| | | |
| | |
Interest | |
$ | 4,100 | | |
$ | 1,533 | |
Income taxes | |
$ | — | | |
$ | — | |
Non-cash operating activities | |
| | | |
| | |
Adoption of ASU 2016-13 | |
$ | 354 | | |
$ | — | |
The accompanying notes are
an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated
Financial Statements
(Unaudited)
NOTE A – BASIS OF PRESENTATION
The consolidated financial
statements include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”),
and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and Magyar Investment Company.
All material intercompany transactions and balances have been eliminated. The Company prepares its consolidated financial statements on
the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US GAAP").
The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion
of management, necessary to a fair statement of the results for the interim periods presented.
Operating results
for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September
30, 2024. The September 30, 2023 information has been derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by US GAAP for complete consolidated financial statements.
The preparation of
consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan
losses, the valuation of available-for-sale investment securities, the valuation of other real estate owned (“OREO”), and
the assessment of realizability of deferred income tax assets.
The Company has evaluated
events and transactions occurring subsequent to the balance sheet date of December 31, 2023 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 issued.
NOTE B - RECENT 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 consolidated financial statements when they are adopted in the future.
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which
changed the impairment model for most financial assets. This update was intended to improve financial reporting by requiring
timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.
The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount
expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for
credit losses (“ACL”) should reflect management's current estimate of credit losses that are expected to occur over the
remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized
financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.
With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. This update is effective for SEC filers
that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years.
The
Company adopted ASU 2016-13 on October 1, 2023 using the modified retrospective approach for all financial assets measured at amortized
cost, including loans, held-to-maturity debt securities, available-for-sale debt securities and unfunded commitments. The Company recorded
a cumulative effect increase to retained earnings of $492,000 ($346,000 net of taxes), which was comprised of a $1,032,000 ($725,000 net
of tax) increase related to loans and $540,000 ($379,000 net of tax) decrease related to unfunded commitments. The Company determined
that there was no impact to retained earnings related to held-to-maturity securities as a result of adopting this guidance. The results
reported for periods beginning on or after October 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported
in accordance with previously applicable accounting standards.
The
impact of the change from the incurred loss model to the current expected credit loss model is included in the following table:
| |
October 1, 2023 | |
| |
| | |
Adoption | | |
| |
| |
Pre-adoption | | |
Impact | | |
As Reported | |
| |
(In thousands) | |
Assets | |
| | |
| | |
| |
ACL on debt securities held-to-maturity | |
$ | — | | |
$ | — | | |
$ | — | |
ACL on loans | |
| | | |
| | | |
| | |
One-to-four family residential | |
| 1,259 | | |
| 7 | | |
| 1,266 | |
Commercial real estate | |
| 5,277 | | |
| (589 | ) | |
| 4,688 | |
Construction | |
| 472 | | |
| (55 | ) | |
| 417 | |
Home equity lines of credit | |
| 207 | | |
| (87 | ) | |
| 120 | |
Commercial business | |
| 939 | | |
| (133 | ) | |
| 806 | |
Other | |
| 176 | | |
| (175 | ) | |
| 1 | |
| |
| | | |
| | | |
| | |
Liabilities | |
| | | |
| | | |
| | |
ACL on unfunded commitments | |
| — | | |
| 540 | | |
| 540 | |
Total | |
$ | 8,330 | | |
$ | (492 | ) | |
$ | 7,838 | |
Allowance for Credit
Losses on Loans
The Company maintains
its allowance for credit losses (“ACL”) at a level that management believes to be appropriate to absorb estimated credit losses
as of the date of the Consolidated Statement of Financial Condition. The Company established its allowance in accordance with the guidance
included in Accounting Standards Codification 326, Financial Instruments – Credit Losses (“ASC 326”). The ACL
is a valuation reserve established and maintained by charges against income. Loans, or portions thereof, are charged-off against the ACL
when they are deemed uncollectible. The ACL is an estimate of expected credit losses that considers our historical loss experience, the
weighted average expected lives of loans, current economic conditions and forecasts of future economic conditions. The determination of
an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the
ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics
and evaluation of loans that do not share risk characteristics with other loans. The ACL is measured on a collective (pool) basis when
similar characteristics exist. The Company’s loan portfolio is segmented by loan types that have similar risk characteristics and
behave similarly during economic cycles.
Historical credit
loss experience is the basis for the estimate of expected credit losses. We apply our historical loss rates to pools of loans with similar
risk characteristics using the Weighted-Average Remaining Maturity (“WARM”) method. The remaining contractual life of the
pools of loans with similar risk characteristics is adjusted by expected scheduled payments and prepayments. After consideration of the
historical loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable
forecasts not already reflected in the historical loss information. Our reasonable and supportable forecast adjustment is based on a regional
economic indicator obtained from the United States Government Publishing Office. The Company selected eight qualitative metrics which
were correlated with the Bank and its peer group’s historical loss patterns. The eight qualitative metrics include: changes in lending
policies and procedures, changes in national and local economic conditions as well as business conditions, changes in the nature, complexity,
and volume of the portfolio, changes in the experience, ability, and depth of lenders and lending management, changes in the volume and
severity of past due and classified loans, changes in the value of collateral securing loans, changes in or the existence of credit concentrations,
and changes in the legal and/or regulatory landscape. The adjustments are weighted for relevance before applying to each pool of loans.
Each quarter, management reviews the recommended adjustment factors and applies any additional adjustments based on current conditions.
The Company has
elected to exclude $4.3 million of accrued interest receivable on loans as of December 31, 2023 from the measurement of its ACL. When
a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Accrued interest on loans
is reported in the accrued interest receivable line on the consolidated statements of financial condition.
The ACL for
individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk
characteristics with other pooled loans and, therefore, should be individually assessed. We individually evaluate all commercial
loans that meet the following criteria: (1) when it is determined that foreclosure is probable, (2) substandard, doubtful and
nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, or (3)
when it is determined by management that a loan does not share similar risk characteristics with other loans. Credit loss estimates
are calculated based on the following three acceptable methods for measuring the ACL: (1) the present value of expected future cash
flows discounted at the loan’s original effective interest rate; (2) the loan’s observable market price; or (3) the fair
value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value
of collateral method because most of our loans are collateral dependent. Collateral values are reduced to consider expected
disposition costs when appropriate. A charge-off is recorded when the estimated fair value of the loan is less than the loan
balance.
Allowance for Credit Losses
on Unfunded Loan Commitments
The Company estimates
expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend
credit unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on unfunded loan commitments
is included in accounts payable and other liabilities in the Company’s Statement of Financial Condition and is adjusted through
credit loss expense. The estimate includes consideration of the likelihood that funding will occur, the amount of funding that will occur
and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
Allowance for Credit Losses
on Held-to-Maturity Securities
The Company accounts
for its held-to-maturity securities in accordance with Accounting Standards Codification (ASC) 326-20, Financial Instruments –
Credit Loss – Measured at Amortized Cost, which requires that the Company measure expected credit losses on held-to-maturity
debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss
information that is adjusted for current economic conditions and reasonable and supportable forecasts.
The Company classifies
its held-to-maturity debt securities into the following major security types: obligations of U.S. government agencies, obligations of
U.S. government-sponsored enterprises, private label mortgage-backed securities, obligations of state and political subdivisions and corporate
securities. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss,
are reviewed on a quarterly basis. Based on the credit ratings of our held-to-maturity securities and our historical experience of no
losses, the Company determined that an allowance for credit losses on its’ held-to-maturity portfolio is not required.
Accrued interest
receivable on held-to-maturity debt securities totaled $215 thousand as of December 31, 2023 and is included within accrued interest receivable
on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses.
Generally, held-to-maturity debt securities are classified as nonaccrual when the contractual payment of principal or interest has become
90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt
securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.
Allowance for Credit Losses
on Available-for-Sale Securities
The Company measures
expected credit losses on available-for-sale debt securities when the Bank intends to sell, or when it is not more likely than not that
it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement
to sell is met, the amortized cost basis of the security is written down to fair value through income. For available-for-sale debt securities
that do not meet the previously mentioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses
or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes
to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If
this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared
to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value
is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized
in other comprehensive income.
The ACL on available-for-sale
debt securities is included within the recorded balance of securities available-for-sale on the Consolidated Statements of Financial Condition.
Changes in the allowance for credit losses are recorded within provision for credit losses on the Consolidated Statements of Income. Losses
are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when
either of the criteria regarding intent or requirement to sell is met.
Accrued interest
receivable on available-for-sale debt securities totaled $26 thousand as of December 31, 2023 and is included within accrued interest
receivable on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected
credit losses. Generally, available-for-sale debt securities are classified as nonaccrual when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When
available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.
NOTE C - CONTINGENCIES
The Company, from
time to time, is 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 as presented in this report.
NOTE D - EARNINGS
PER SHARE
The following table
presents a calculation of basic and diluted earnings per share for the three months ended December 31, 2023 and 2022. Basic and diluted
earnings per share were calculated by dividing net income by the weighted-average number of shares outstanding for the periods.
| |
For the Three Months | |
| |
Ended December 31, | |
| |
2023 | | |
2022 | |
| |
(Dollars in thousands, except share and per share data) | |
| |
| | |
| |
Income applicable to common shares | |
$ | 1,652 | | |
$ | 1,810 | |
Weighted average common shares outstanding- basic | |
| 6,387,010 | | |
| 6,456,525 | |
Potential diliutive common stock equivalents | |
| — | | |
| 2,921 | |
Weighted average common shares outstanding- diluted | |
| 6,387,010 | | |
| 6,459,446 | |
Earnings per share - basic | |
$ | 0.26 | | |
$ | 0.28 | |
Earnings per share - diluted | |
$ | 0.26 | | |
$ | 0.28 | |
Options to purchase
293,200 shares of common stock at a weighted average strike price of $12.58 and 124,320 shares of restricted shares at a weighted average
price of $12.63 were outstanding at December 31, 2023 but were not included in the calculation of diluted EPS because they were anti-dilutive.
Options to purchase 293,200 shares of common stock at a weighted average strike price of $12.58 and 156,400 shares of restricted shares
at a weighted average price of $12.63 were outstanding at December 31, 2022.
NOTE E – STOCK-BASED COMPENSATION AND STOCK
REPURCHASE PROGRAM
On August 25, 2022, the
Company adopted the 2022 Equity Compensation Plan which provided for grants of up to 547,400 shares to be allocated between incentive
and non-qualified stock options and restricted stock awards to officers, employees and directors of the Company and Magyar Bank. At December
31, 2023, 293,200 options and 124,320 shares of restricted stock had been awarded from the plan.
The following is a summary
of the status of the Company’s stock option activity and related information for the three months ended December
31, 2023:
| |
Shares | | |
Weighted
Average
Exercise Price | | |
Weighted
Average
Remaining
Contractual Life
in Years | | |
Aggregate
Intrinsic
Value | |
| |
| | |
| | |
| | |
| |
Balance at September 30, 2023 | |
| 293,200 | | |
$ | 12.58 | | |
| 8.98 | | |
$ | — | |
Granted | |
| — | | |
| — | | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Expired | |
| — | | |
| — | | |
| — | | |
| — | |
Balance at December 31, 2023 | |
| 293,200 | | |
$ | 12.58 | | |
| 8.73 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at December 31, 2023 | |
| 58,640 | | |
$ | 12.58 | | |
| 8.73 | | |
$ | — | |
The following is a
summary of the status of the Company’s non-vested restricted shares for the three months ended December 31, 2023:
| |
Shares | | |
Weighted
Average Grant
Date Fair Value | |
Balance at September 30, 2023 | |
| 124,320 | | |
$ | 12.63 | |
Granted | |
| — | | |
| — | |
Vested | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Balance at December 31, 2023 | |
| 124,320 | | |
$ | 12.63 | |
Stock option and stock
award expenses included with compensation expense were $63,000 and $98,000 for the three months ended December 31, 2023 and $69,000 and
$111,000 for the three months ended December 31, 2022. At December 31, 2023, total compensation cost not yet recognized for the Company’s
unvested stock options and stock awards was $2.4 million. The Company had no other stock-based compensation plans as of December 31, 2023
except as disclosed below.
On December 8, 2022, the
Company announced the authorization of fourth stock repurchase plan pursuant to which the Company intends to repurchase up to an additional
5% of its outstanding shares, or up to 337,146 shares, under which 120,062 shares had been repurchased at an average price of $11.51 through
December 31, 2023. Under this stock repurchase program, 217,084 shares of the 337,146 shares authorized remained available for repurchase
as of December 31, 2023. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held
treasury stock shares totaling 442,873 at December 31, 2023. The timing of the repurchases will depend on certain factors, including but
not limited to, market conditions and prices, the Company’s liquidity requirements and alternative uses of capital.
The Company has an Employee
Stock Ownership Plan ("ESOP") for the benefit of employees who meet certain eligibility requirements. The ESOP trust purchases
shares of common stock in the open market using proceeds of a loan from the Company. The loan is secured by shares of the Company’s
stock. 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. 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.
In connection with the
Company’s second-step stock offering during its fiscal year ending September 30, 2021, the ESOP trustees purchased 312,800 shares
of the Company’s common stock for $3.4 million, reflecting an average cost per share of $10.77. The ESOP loan bears a fixed interest
rate of 3.25% with principal and interest payable annually in equal installments over 30 years.
At December 31, 2023,
ESOP shares allocated to participants totaled 170,335. Unallocated ESOP shares held in suspense totaled 290,313 with an aggregate fair
value of $3.3 million. The Company's contribution expense for the ESOP was $50,000 and $41,000 for the three months ended December 31,
2023 and 2022, respectively.
NOTE F –
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 Company recorded no reclassification
adjustments during the three months ended December 31, 2023 and 2022. The components of other comprehensive income (loss) and the related
income tax effects are as follows:
| |
Three Months Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
Tax | | |
Net of | | |
| | |
Tax | | |
Net of | |
| |
Before Tax | | |
(Benefit) | | |
Tax | | |
Before Tax | | |
(Benefit) | | |
Tax | |
| |
Amount | | |
Expense | | |
Amount | | |
Amount | | |
Expense | | |
Amount | |
| |
(In thousands) | |
Unrealized holding gain (loss) arising during period on: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Available-for-sale investments | |
$ | 584 | | |
$ | (144 | ) | |
$ | 440 | | |
$ | 206 | | |
$ | (50 | ) | |
$ | 156 | |
Other comprehensive income (loss), net | |
$ | 584 | | |
$ | (144 | ) | |
$ | 440 | | |
$ | 206 | | |
$ | (50 | ) | |
$ | 156 | |
(a) All amounts are net of tax. Related income tax expense or benefit calculated using an income tax rate approximating 25% for available-for-sale investments.
NOTE G – 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
securities available-for-sale and the Company’s derivative assets and liabilities 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 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, 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 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 based
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 securities 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-sponsored
mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service.
An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for
identical assets are generally not available for the securities in the Company’s portfolio. Various modeling techniques are used
to determine pricing for Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs
to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities,
bids, offers and reference data.
Derivatives
Magyar Bank executes
interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. The fair values of such
derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining
terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).
The following tables
provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on
a recurring basis.
December 31, 2023 | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets: | |
(In thousands) | |
Securities available for sale: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 95 | | |
$ | — | | |
$ | 95 | | |
$ | — | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities-residential | |
| 12,178 | | |
| — | | |
| 12,178 | | |
| — | |
Total securities available for sale | |
$ | 12,273 | | |
$ | — | | |
$ | 12,273 | | |
$ | — | |
Derivative assets | |
| 1,961 | | |
| — | | |
| 1,961 | | |
| — | |
Total assets | |
$ | 14,234 | | |
$ | — | | |
$ | 14,234 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | 1,961 | | |
$ | — | | |
$ | 1,961 | | |
$ | — | |
Total Liabilities | |
$ | 1,961 | | |
$ | — | | |
$ | 1,961 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
September 30, 2023 | |
| | | |
| | | |
| | | |
| | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Securities available for sale: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 92 | | |
$ | — | | |
$ | 92 | | |
$ | — | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities-residential | |
| 10,033 | | |
| — | | |
| 10,033 | | |
| — | |
Total securities available for sale | |
$ | 10,125 | | |
$ | — | | |
$ | 10,125 | | |
$ | — | |
Derivative assets | |
| 2,579 | | |
| — | | |
| 2,579 | | |
| — | |
Total assets | |
$ | 12,704 | | |
$ | — | | |
$ | 12,704 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Derivative liabilities | |
$ | 2,579 | | |
$ | — | | |
$ | 2,579 | | |
$ | — | |
Total Liabilities | |
$ | 2,579 | | |
$ | — | | |
$ | 2,579 | | |
$ | — | |
The following is
a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.
Collateral Dependent Loans
Collateral dependent
loans are measured and reported at fair value through specific allocations of the allowance for credit losses based on the fair value
of the underlying collateral.
The following tables
provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on
a non-recurring basis at December 31, 2023 and September 30, 2023.
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
At December 31, 2023 | |
(In thousands) | |
| |
| | |
| | |
| | |
| |
Collateral dependent loans | |
$ | 777 | | |
$ | — | | |
$ | — | | |
$ | 777 | |
Total | |
$ | 777 | | |
$ | — | | |
$ | — | | |
$ | 777 | |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
At September 30, 2023 | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Impaired loans | |
$ | 777 | | |
$ | — | | |
$ | — | | |
$ | 777 | |
Total | |
$ | 777 | | |
$ | — | | |
$ | — | | |
$ | 777 | |
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 | |
| |
|
December 31, 2023 | |
Estimate | | |
Techniques | |
Unobservable Input | |
Range (Weighted Average) |
| |
| | | |
| |
| |
|
Collateral dependent loans | |
$ | 777 | | |
Appraisal of collateral (1) | |
Appraisal adjustments (2) | |
-50% to -8.0% (-12.0%) |
| |
| | |
| |
| |
|
| |
Fair Value | | |
Valuation | |
| |
|
September 30, 2023 | |
Estimate | | |
Techniques | |
Unobservable Input | |
Range (Weighted Average) |
| |
| | | |
| |
| |
|
Impaired loans | |
$ | 777 | | |
Appraisal of collateral (1) | |
Appraisal adjustments (2) | |
-50% to -8.0% (-19.4%) |
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 December 31, 2023 and September 30, 2023. For short-term financial assets such as cash and cash equivalents
and accrued interest receivable, 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 being payable on demand and
having no stated maturity.
| |
Carrying | | |
Fair | | |
Fair Value Measurement Placement | |
| |
Value | | |
Value | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
| |
(In thousands) | |
December 31, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
Financial instruments - assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Investment securities held to maturity | |
$ | 84,333 | | |
$ | 75,508 | | |
$ | — | | |
$ | 75,508 | | |
$ | — | |
Loans | |
| 728,560 | | |
| 703,158 | | |
| — | | |
| — | | |
| 703,158 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial instruments - liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit including retirement certificates | |
| 112,463 | | |
| 110,530 | | |
| — | | |
| 110,530 | | |
| — | |
Borrowings | |
| 28,796 | | |
| 27,930 | | |
| — | | |
| 27,930 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
September 30, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
Financial instruments - assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Investment securities held-to-maturity | |
$ | 85,835 | | |
$ | 73,728 | | |
$ | — | | |
$ | 73,728 | | |
$ | — | |
Loans | |
| 689,070 | | |
| 664,331 | | |
| — | | |
| — | | |
| 664,331 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial instruments - liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Certificates of deposit including retirement certificates | |
| 104,668 | | |
| 101,216 | | |
| — | | |
| 101,216 | | |
| — | |
Borrowings | |
| 29,515 | | |
| 28,177 | | |
| — | | |
| 28,177 | | |
| — | |
NOTE H - INVESTMENT SECURITIES
The following table
summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at December 31, 2023:
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
December 31, 2023 | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| |
(In thousands) | |
Securities available-for-sale: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 103 | | |
$ | — | | |
$ | (8 | ) | |
$ | 95 | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities-residential | |
| 13,551 | | |
| 39 | | |
| (1,412 | ) | |
| 12,178 | |
Total securities available-for-sale | |
$ | 13,654 | | |
$ | 39 | | |
$ | (1,420 | ) | |
$ | 12,273 | |
Securities held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 4,986 | | |
$ | — | | |
$ | (677 | ) | |
$ | 4,309 | |
Mortgage-backed securities - commercial | |
| 2,484 | | |
| — | | |
| (22 | ) | |
| 2,462 | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed-securities - residential | |
| 47,199 | | |
| — | | |
| (6,229 | ) | |
| 40,970 | |
Debt securities | |
| 22,999 | | |
| 6 | | |
| (1,378 | ) | |
| 21,627 | |
Private label mortgage-backed securities - residential | |
| 203 | | |
| — | | |
| (10 | ) | |
| 193 | |
Obligations of state and political subdivisions | |
| 3,462 | | |
| 5 | | |
| (324 | ) | |
| 3,143 | |
Corporate securities | |
| 3,000 | | |
| — | | |
| (196 | ) | |
| 2,804 | |
Total securities held-to-maturity | |
$ | 84,333 | | |
$ | 11 | | |
$ | (8,836 | ) | |
$ | 75,508 | |
Total investment securities | |
$ | 97,987 | | |
$ | 50 | | |
$ | (10,256 | ) | |
$ | 87,781 | |
The Company monitors
the credit quality of held-to-maturity debt securities, primarily through their credit ratings by nationally recognized statistical ratings
organizations, on a quarterly basis. At December 31, 2023, there were no non-performing held-to-maturity debt securities and no allowance
for credit losses were required. The majority of the investment securities are explicitly or implicitly guaranteed by the United States
government, and any estimate of expected credit losses would be insignificant to the Company. The following table summarizes the amortized
cost of held-to-maturity debt securities at December 31, 2023, aggregated by credit quality indicator:
| |
Credit Rating | |
| |
AAA/AA/A | | |
BBB/BB/B | | |
Non-rated | |
December 31, 2023 | |
(In thousands) | |
Securities held-to-maturity: | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 4,986 | | |
$ | — | | |
$ | — | |
Mortgage-backed securities - commercial | |
| 2,484 | | |
| — | | |
| — | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | |
Mortgage backed securities - residential | |
| 47,199 | | |
| — | | |
| — | |
Debt securities | |
| 22,999 | | |
| — | | |
| — | |
Private label mortgage-backed securities - residential | |
| — | | |
| — | | |
| 203 | |
Obligations of state and political subdivisions | |
| 3,462 | | |
| — | | |
| — | |
Corporate securities | |
| — | | |
| 3,000 | | |
| — | |
Totals | |
$ | 81,130 | | |
$ | 3,000 | | |
$ | 203 | |
The contractual
maturities of debt securities, municipal bonds and certain information regarding mortgage-backed securities at December 31, 2023 are summarized
in the following table:
| |
December 31, 2023 | |
| |
Amortized | | |
Fair | |
| |
Cost | | |
Value | |
| |
(In thousands) | |
Due within 1 year | |
$ | 4,000 | | |
$ | 3,966 | |
Due after 1 but within 5 years | |
| 20,526 | | |
| 19,315 | |
Due after 5 but within 10 years | |
| 4,935 | | |
| 4,293 | |
Due after 10 years | |
| — | | |
| — | |
Total debt securities | |
| 29,461 | | |
| 27,574 | |
| |
| | | |
| | |
Mortgage backed securities: | |
| | | |
| | |
Residential | |
| 66,042 | | |
| 57,745 | |
Commercial | |
| 2,484 | | |
| 2,462 | |
Total | |
$ | 97,987 | | |
$ | 87,781 | |
The following table
summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at September 30, 2023:
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
September 30, 2023 | |
Cost | | |
Gains | | |
Losses | | |
Value | |
| |
(In thousands) | |
Securities available-for-sale: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage backed securities - residential | |
$ | 106 | | |
$ | — | | |
$ | (14 | ) | |
$ | 92 | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities-residential | |
| 11,984 | | |
| — | | |
| (1,951 | ) | |
| 10,033 | |
Total securities available for sale | |
$ | 12,090 | | |
$ | — | | |
$ | (1,965 | ) | |
$ | 10,125 | |
Securities held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
$ | 5,070 | | |
$ | — | | |
$ | (850 | ) | |
$ | 4,220 | |
Mortgage-backed securities - commercial | |
| 2,509 | | |
| — | | |
| (16 | ) | |
| 2,493 | |
Obligations of U.S. government-sponsored enterprises: | |
| | | |
| | | |
| | | |
| | |
Mortgage backed securities - residential | |
| 48,086 | | |
| — | | |
| (8,480 | ) | |
| 39,606 | |
Debt securities | |
| 23,497 | | |
| — | | |
| (1,947 | ) | |
| 21,550 | |
Private label mortgage-backed securities - residential | |
| 207 | | |
| — | | |
| (12 | ) | |
| 195 | |
Obligations of state and political subdivisions | |
| 3,466 | | |
| — | | |
| (605 | ) | |
| 2,861 | |
Corporate securities | |
| 3,000 | | |
| — | | |
| (197 | ) | |
| 2,803 | |
Total securities held to maturity | |
$ | 85,835 | | |
$ | — | | |
$ | (12,107 | ) | |
$ | 73,728 | |
Total investment securities | |
$ | 97,925 | | |
$ | — | | |
$ | (14,072 | ) | |
$ | 83,853 | |
As of December 31, 2023 investment securities
having an estimated fair value of approximately $12.2 million were pledged to secure public deposits.
NOTE I – CREDIT LOSSES ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
The Company recognizes
an allowance for credit losses on debt securities in earnings through a provision for credit losses while noncredit-related impairment
on debt securities not expected to be sold are recognized in other comprehensive income.
The Company reviews
its investment portfolio on a quarterly basis for indications of credit losses. This review includes analyzing the extent to which the
fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events
which may influence the operations of the issuer and the intent and ability to hold the investment for a period of time sufficient to
allow for any anticipated recovery in the market. The Company evaluates its intent and ability to hold debt securities based upon its
investment strategy for the particular type of security and its cash flow needs, liquidity position, capital adequacy and interest rate
risk position. In addition, the risk of future credit losses may be influenced by prolonged recession in the U.S. economy, changes in
real estate values and interest deferrals.
Investment securities with fair values
greater than their amortized cost contain unrealized gains. Investment securities with fair values less than their amortized cost contain
unrealized losses. Details of available-for-sale securities with unrealized losses at December 31, 2023 are as follows:
| |
| | |
Less Than 12 Months | | |
12 Months Or Greater | | |
Total | |
| |
Number of | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Securities | | |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
December 31, 2023 | |
(Dollars in thousands) |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
| 1 | | |
$ | — | | |
$ | — | | |
$ | 95 | | |
$ | (8 | ) | |
$ | 95 | | |
$ | (8 | ) |
Obligations of U.S. government-sponsored enterprises | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
| 9 | | |
| 1,879 | | |
| (9 | ) | |
| 7,929 | | |
| (1,403 | ) | |
| 9,808 | | |
| (1,412 | ) |
Total | |
| 10 | | |
$ | 1,879 | | |
$ | (9 | ) | |
$ | 8,024 | | |
$ | (1,411 | ) | |
$ | 9,903 | | |
$ | (1,420 | ) |
Prior to the adoption of ASU 2016-13, details
of our entire investment portfolio were required to be disclosed. Accordingly, details of our held-to-maturity and available-for-sale
investment securities with unrealized losses at September 30, 2023 were as follows:
| |
| | |
Less Than 12 Months | | |
12 Months Or Greater | | |
Total | |
| |
Number of | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | | |
Unrealized | |
| |
Securities | | |
Value | | |
Losses | | |
Value | | |
Losses | | |
Value | | |
Losses | |
September 30, 2023 | |
(Dollars in thousands) |
Obligations of U.S. government agencies: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
| 6 | | |
$ | — | | |
$ | — | | |
$ | 4,312 | | |
$ | (864 | ) | |
$ | 4,312 | | |
$ | (864 | ) |
Mortgage-backed securities - commercial | |
| 2 | | |
| 1,926 | | |
| (14 | ) | |
| 567 | | |
| (2 | ) | |
| 2,493 | | |
| (16 | ) |
Obligations of U.S. government-sponsored enterprises | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mortgage-backed securities - residential | |
| 50 | | |
| 4,938 | | |
| (49 | ) | |
| 44,485 | | |
| (10,382 | ) | |
| 49,423 | | |
| (10,431 | ) |
Debt securities | |
| 12 | | |
| — | | |
| — | | |
| 21,550 | | |
| (1,947 | ) | |
| 21,550 | | |
| (1,947 | ) |
Private label mortgage-backed securities residential | |
| 1 | | |
| — | | |
| — | | |
| 195 | | |
| (12 | ) | |
| 195 | | |
| (12 | ) |
Obligations of state and political subdivisions | |
| 7 | | |
| 789 | | |
| (43 | ) | |
| 2,072 | | |
| (562 | ) | |
| 2,861 | | |
| (605 | ) |
Corporate securities | |
| 1 | | |
| — | | |
| — | | |
| 2,803 | | |
| (197 | ) | |
| 2,803 | | |
| (197 | ) |
Total | |
| 79 | | |
$ | 7,653 | | |
$ | (106 | ) | |
$ | 75,984 | | |
$ | (13,966 | ) | |
$ | 83,637 | | |
$ | (14,072 | ) |
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 credit losses and determined that there are no allowance for credit loss was required as of
December 31, 2023.
NOTE J – LOANS RECEIVABLE, NET AND RELATED ALLOWANCE
FOR CREDIT LOSSES
Loans receivable,
net were comprised of the following:
| |
December 31, | | |
September 30, | |
| |
2023 | | |
2023 | |
| |
(In thousands) | |
| |
| | |
| |
One-to-four family residential | |
$ | 234,156 | | |
$ | 237,683 | |
Commercial real estate | |
| 407,346 | | |
| 389,134 | |
Construction and land | |
| 34,641 | | |
| 21,853 | |
Home equity loans and lines of credit | |
| 24,069 | | |
| 16,983 | |
Commercial business | |
| 27,043 | | |
| 30,194 | |
Other | |
| 2,239 | | |
| 2,359 | |
Total loans receivable | |
| 729,494 | | |
| 698,206 | |
Net deferred loan costs | |
| (934 | ) | |
| (806 | ) |
Total loans receivable, net | |
$ | 728,560 | | |
$ | 697,400 | |
The segments of
the Company’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: first lien, amortizing term loans, and the combination of second lien
amortizing term loans and home equity lines of credit. The commercial loan segment is further disaggregated into three classes: loans
secured by multifamily structures, loans secured by owner-occupied commercial structures, and loans secured by 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 of revolving lines of credit and loans partially guaranteed by the U.S. Small Business Administration. 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 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. Loans classified Doubtful have all the weaknesses
inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current
conditions and facts, is highly improbable. 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 Company 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 Company’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 Company’s 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 following table
presents the classes of the loan portfolio by origination year summarized by the aggregate Pass and the criticized categories of Special
Mention, Substandard and Doubtful for loans subject to the Company’s internal risk rating system and by performing status for all
other loans as of December 31, 2023.
| |
| | |
| | |
| | |
| | |
| | |
| | |
Revolving Loans | | |
| |
| |
December 31, 2023 | | |
Amortized | | |
Converted | | |
| |
| |
Term Loans Amortized Cost Basis by Origination Fiscal Year | | |
Cost Basis | | |
to Term | | |
Total | |
| |
2024 | | |
2023 | | |
2022 | | |
2021 | | |
2020 | | |
Prior | | |
| | |
| | |
| |
| |
(In thousands) | |
One-to-four family residential | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Performing | |
$ | 7,180 | | |
$ | 43,224 | | |
$ | 33,060 | | |
$ | 27,899 | | |
$ | 31,288 | | |
$ | 91,353 | | |
$ | — | | |
$ | — | | |
$ | 234,004 | |
Non-performing | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 152 | | |
| — | | |
| — | | |
| 152 | |
Total | |
$ | 7,180 | | |
$ | 43,224 | | |
$ | 33,060 | | |
$ | 27,899 | | |
$ | 31,288 | | |
$ | 91,505 | | |
$ | — | | |
$ | — | | |
$ | 234,156 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial real estate | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pass | |
$ | 18,235 | | |
$ | 82,558 | | |
$ | 68,224 | | |
$ | 66,529 | | |
$ | 30,007 | | |
$ | 131,540 | | |
$ | 6,373 | | |
$ | 1,540 | | |
$ | 405,006 | |
Special Mention | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 116 | | |
| — | | |
| — | | |
| 116 | |
Substandard | |
| — | | |
| — | | |
| 2,224 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,224 | |
Doubtful | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 18,235 | | |
$ | 82,558 | | |
$ | 70,448 | | |
$ | 66,529 | | |
$ | 30,007 | | |
$ | 131,656 | | |
$ | 6,373 | | |
$ | 1,540 | | |
$ | 407,346 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Construction and land | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pass | |
$ | 10,368 | | |
$ | 12,297 | | |
$ | 2,351 | | |
$ | — | | |
$ | 1,761 | | |
$ | 4,665 | | |
$ | 725 | | |
$ | — | | |
$ | 32,167 | |
Special Mention | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Substandard | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,474 | | |
| — | | |
| — | | |
| 2,474 | |
Doubtful | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 10,368 | | |
$ | 12,297 | | |
$ | 2,351 | | |
$ | — | | |
$ | 1,761 | | |
$ | 7,139 | | |
$ | 725 | | |
$ | — | | |
$ | 34,641 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Home equity loans and lines of credit | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Performing | |
$ | 724 | | |
$ | 1,678 | | |
$ | 1,657 | | |
$ | 342 | | |
$ | 277 | | |
$ | 1,438 | | |
$ | 17,953 | | |
$ | — | | |
$ | 24,069 | |
Non-performing | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 724 | | |
$ | 1,678 | | |
$ | 1,657 | | |
$ | 342 | | |
$ | 277 | | |
$ | 1,438 | | |
$ | 17,953 | | |
$ | — | | |
$ | 24,069 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Commercial business | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Pass | |
$ | 1,030 | | |
$ | 542 | | |
$ | 2,685 | | |
$ | 2,047 | | |
$ | 946 | | |
$ | 3,390 | | |
$ | 16,403 | | |
$ | — | | |
$ | 27,043 | |
Special Mention | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Substandard | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Doubtful | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 1,030 | | |
$ | 542 | | |
$ | 2,685 | | |
$ | 2,047 | | |
$ | 946 | | |
$ | 3,390 | | |
$ | 16,403 | | |
$ | — | | |
$ | 27,043 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Performing | |
$ | — | | |
$ | — | | |
$ | 65 | | |
$ | 1 | | |
$ | 13 | | |
$ | 1,793 | | |
$ | 367 | | |
$ | — | | |
$ | 2,239 | |
Non-performing | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | — | | |
$ | — | | |
$ | 65 | | |
$ | 1 | | |
$ | 13 | | |
$ | 1,793 | | |
$ | 367 | | |
$ | — | | |
$ | 2,239 | |
Current period gross charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Information presented in the table
above is not required for periods prior to the adoption of ASU 2016-13. The following table presents more
comparable information 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 as of September 30, 2023.
| |
| | |
Special | | |
| | |
| | |
| |
| |
Pass | | |
Mention | | |
Substandard | | |
Doubtful | | |
Total | |
| |
(In thousands) | |
September 30, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family residential | |
$ | 236,876 | | |
$ | — | | |
$ | 807 | | |
$ | — | | |
$ | 237,683 | |
Commercial real estate | |
| 386,794 | | |
| 116 | | |
| 2,224 | | |
| — | | |
| 389,134 | |
Construction | |
| 19,379 | | |
| — | | |
| 2,474 | | |
| — | | |
| 21,853 | |
Home equity lines of credit | |
| 16,983 | | |
| — | | |
| — | | |
| — | | |
| 16,983 | |
Commercial business | |
| 30,194 | | |
| — | | |
| — | | |
| — | | |
| 30,194 | |
Other | |
| 2,359 | | |
| — | | |
| — | | |
| — | | |
| 2,359 | |
Total | |
$ | 692,585 | | |
$ | 116 | | |
$ | 5,505 | | |
$ | — | | |
$ | 698,206 | |
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 Bank was not accruing interest on any loans delinquent greater than 90 days. The following table
presents 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 | |
| |
Current | | |
Past Due | | |
Past Due | | |
Past Due | | |
Loans | |
| |
(In thousands) | |
December 31, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family residential | |
$ | 232,710 | | |
$ | 1,056 | | |
$ | 238 | | |
$ | 152 | | |
$ | 234,156 | |
Commercial real estate | |
| 404,315 | | |
| 690 | | |
| 116 | | |
| 2,225 | | |
| 407,346 | |
Construction | |
| 32,167 | | |
| — | | |
| — | | |
| 2,474 | | |
| 34,641 | |
Home equity lines of credit | |
| 24,069 | | |
| — | | |
| — | | |
| — | | |
| 24,069 | |
Commercial business | |
| 26,404 | | |
| 639 | | |
| — | | |
| — | | |
| 27,043 | |
Other | |
| 2,239 | | |
| — | | |
| — | | |
| — | | |
| 2,239 | |
Total | |
$ | 721,904 | | |
$ | 2,385 | | |
$ | 354 | | |
$ | 4,851 | | |
$ | 729,494 | |
| |
| | |
30-59 | | |
60-89 | | |
| | |
| |
| |
| | |
Days | | |
Days | | |
90 Days + | | |
Total | |
| |
Current | | |
Past Due | | |
Past Due | | |
Past Due | | |
Loans | |
| |
(In thousands) | |
September 30, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to four-family residential | |
$ | 236,729 | | |
$ | — | | |
$ | 568 | | |
$ | 386 | | |
$ | 237,683 | |
Commercial real estate | |
| 386,794 | | |
| — | | |
| 116 | | |
| 2,224 | | |
| 389,134 | |
Construction | |
| 19,379 | | |
| — | | |
| — | | |
| 2,474 | | |
| 21,853 | |
Home equity lines of credit | |
| 16,983 | | |
| — | | |
| — | | |
| — | | |
| 16,983 | |
Commercial business | |
| 30,047 | | |
| 147 | | |
| — | | |
| — | | |
| 30,194 | |
Other | |
| 2,359 | | |
| — | | |
| — | | |
| — | | |
| 2,359 | |
Total | |
$ | 692,291 | | |
$ | 147 | | |
$ | 684 | | |
$ | 5,084 | | |
$ | 698,206 | |
The following tables present our non-accrual
loans and the related allowance for credit loss by loan type as of December 31, 2023 and the non-accrual loans and specific reserves by
loan type as of September 30, 2023.
| |
Non- | | |
Allowance for | |
| |
Accrual | | |
Credit Loss | |
| |
(In thousands) | |
December 31, 2023 | |
| | | |
| | |
One-to-four family residential | |
$ | 152 | | |
$ | — | |
Commercial real estate | |
| 2,225 | | |
| — | |
Construction and land | |
| 2,474 | | |
| — | |
Home loans and lines of credit | |
| — | | |
| — | |
Commercial business | |
| — | | |
| — | |
Total | |
$ | 4,851 | | |
$ | — | |
| |
Non- | | |
Specific | |
| |
Accrual | | |
Reserve | |
| |
(In thousands) | |
September 30, 2023 | |
| | | |
| | |
One-to four-family residential | |
$ | 386 | | |
$ | — | |
Commercial real estate | |
| 2,224 | | |
| — | |
Construction and land | |
| 2,474 | | |
| — | |
Home equity lines of credit | |
| — | | |
| — | |
Commercial business | |
| — | | |
| — | |
Other | |
| — | | |
| — | |
Total | |
$ | 5,084 | | |
$ | — | |
The following table
identifies our non-performing, collateral dependent loans by collateral type as of December 31, 2023:
| |
December 31, | |
| |
2023 | |
| |
(In thousands) | |
One- to four-family residential | |
$ | 152 | |
Commercial real estate | |
| 2,225 | |
Land | |
| 2,474 | |
Total | |
$ | 4,851 | |
The Company’s
adoption of ASU 2016-13 eliminated the requirement to disclose impaired loans. The following table presents impaired loans by class, segregated
by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2023:
| |
| | |
| | |
Impaired | | |
| | |
| |
| |
| | |
| | |
Loans with | | |
| | |
| |
| |
Impaired Loans with | | |
No Specific | | |
| | |
| |
| |
Specific Allowance | | |
Allowance | | |
Total Impaired Loans | |
| |
| | |
| | |
| | |
| | |
Unpaid | |
| |
Recorded | | |
Related | | |
Recorded | | |
Recorded | | |
Principal | |
| |
Investment | | |
Allowance | | |
Investment | | |
Investment | | |
Balance | |
September 30, 2023 | |
(In thousands) | |
| |
| | |
| | |
| | |
| | |
| |
One-to four-family residential | |
$ | — | | |
$ | — | | |
$ | 2,031 | | |
$ | 2,031 | | |
$ | 2,031 | |
Commercial real estate | |
| — | | |
| — | | |
| 2,969 | | |
| 2,969 | | |
| 2,969 | |
Construction | |
| — | | |
| — | | |
| 2,474 | | |
| 2,474 | | |
| 2,539 | |
Commercial business | |
| — | | |
| — | | |
| 147 | | |
| 147 | | |
| 147 | |
Total impaired loans | |
$ | — | | |
$ | — | | |
$ | 7,621 | | |
$ | 7,621 | | |
$ | 7,686 | |
The following table
presents the average recorded investment in impaired loans and the interest income recognized on impaired loans for the three months ended
December 31, 2022.
| |
Three Months Ended | |
| |
December 31, 2022 | |
| |
(In thousands) | |
| |
| |
One-to-four family residential | |
$ | 1,447 | |
Commercial real estate | |
| 1,269 | |
Construction | |
| 2,835 | |
Commercial business | |
| 203 | |
Average investment in impaired loans | |
$ | 5,754 | |
| |
| | |
Interest income recognized on | |
| | |
an accrual basis on impaired loans | |
| | |
One-to-four family residential | |
$ | 20 | |
Commercial real estate | |
| 13 | |
Commercial business | |
| 2 | |
Total | |
$ | 35 | |
An allowance for credit losses
(“ACL”) is maintained to absorb losses from the loan portfolio. 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 ACL. When information
confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL. Since loans individually
evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ACL for loans individually
evaluated for impairment.
ASU
2016-13 requires estimated credit losses on loans to be determined based on an expected life of loan model, as compared to an incurred
loss model (in effect for periods prior to October 1, 2023). Accordingly, the allowance for losses disclosures subsequent to October
1, 2023 are not always comparable to prior dates. In addition, certain new disclosures required under ASU 2016-13 are not applicable
to prior periods. As a result, the following tables present disclosures separately for each period, where appropriate. New
disclosures required under ASU 2016-13 are only shown for the current period. Please refer to Note B “Summary of Significant
Accounting Policies” for a summary of the impact of adopting the provisions of ASU 2016-13 on October 1, 2023.
The
following tables set forth the allocation of the Bank’s allowance for credit losses by loan category at the dates indicated. The
portion of the credit loss allowance allocated to each loan category does not represent the total available for future losses which may
occur within the loan category since the total credit loss allowance is a valuation allocation applicable to the entire loan portfolio.
The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated
substandard or worse that are 90 days past due.
The
following table presents, by loan category, the changes in the allowance for credit losses for the
three months ended December 31, 2023 and the allowance for loan losses for the three months ended December 31, 2022.
| |
One-to-Four | | |
| | |
| | |
Home Equity | | |
| | |
| | |
| | |
| |
| |
Family | | |
Commercial | | |
| | |
Lines of | | |
Commercial | | |
| | |
| | |
| |
| |
Residential | | |
Real Estate | | |
Construction | | |
Credit | | |
Business | | |
Other | | |
Unallocated | | |
Total | |
| |
(In thousands) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance- September 30, 2023 | |
$ | 1,259 | | |
$ | 5,277 | | |
$ | 472 | | |
$ | 207 | | |
$ | 939 | | |
$ | 2 | | |
$ | 174 | | |
$ | 8,330 | |
Effect of adopting ASU 2016-13 | |
| 7 | | |
| (589 | ) | |
| (55 | ) | |
| (87 | ) | |
| (133 | ) | |
| (1 | ) | |
| (174 | ) | |
| (1,032 | ) |
Charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Recoveries | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Provision (credit) | |
| (75 | ) | |
| 161 | | |
| 301 | | |
| (40 | ) | |
| 39 | | |
| (1 | ) | |
| — | | |
| 385 | |
Balance- December 31, 2023 | |
$ | 1,191 | | |
$ | 4,849 | | |
$ | 718 | | |
$ | 80 | | |
$ | 845 | | |
$ | — | | |
$ | — | | |
$ | 7,683 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance- September 30, 2022 | |
$ | 1,223 | | |
$ | 4,612 | | |
$ | 461 | | |
$ | 263 | | |
$ | 1,484 | | |
$ | 1 | | |
$ | 389 | | |
$ | 8,433 | |
Charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Recoveries | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Provision (credit) | |
| 12 | | |
| 518 | | |
| 65 | | |
| (7 | ) | |
| (109 | ) | |
| — | | |
| (162 | ) | |
| 317 | |
Balance- December 31, 2022 | |
$ | 1,235 | | |
$ | 5,130 | | |
$ | 526 | | |
$ | 256 | | |
$ | 1,375 | | |
$ | 1 | | |
$ | 227 | | |
$ | 8,750 | |
During the three months ended
December 31, 2023 and exclusive of the impact of the adoption of ASU 2016-13, the changes in the provision for credit losses for each
portfolio of loans were primarily due to fluctuations in the outstanding balance of each segment of loans collectively evaluated for impairment.
Specifically, we experienced significant growth in our commercial real estate and construction loan portfolios during the three months
ended December 31, 2023 and a corresponding increase in the provision for credit losses for these portfolios. The overall increase in
the allowance during the three months ended December 31, 2023 is attributed to the previously mentioned growth in our commercial real
estate and construction portfolios, partially offset by improved economic metrics with continued low levels of net charge-offs and a decrease
in non-performing assets.
The following table presents,
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 and September 30, 2023.
| |
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, 2023 | |
$ | 1,259 | | |
$ | 5,277 | | |
$ | 472 | | |
$ | 207 | | |
$ | 939 | | |
$ | 2 | | |
$ | 174 | | |
$ | 8,330 | |
Individually evaluated | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
for impairment | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Collectively evaluated | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
for impairment | |
| 1,259 | | |
| 5,277 | | |
| 472 | | |
| 207 | | |
| 939 | | |
| 2 | | |
| 174 | | |
| 8,330 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loans receivable: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance - September 30, 2023 | |
$ | 237,683 | | |
$ | 389,134 | | |
$ | 21,853 | | |
$ | 16,983 | | |
$ | 30,194 | | |
$ | 2,359 | | |
$ | — | | |
$ | 698,206 | |
Individually evaluated | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
for impairment | |
| 2,031 | | |
| 2,969 | | |
| 2,474 | | |
| — | | |
| 147 | | |
| — | | |
| — | | |
| 7,621 | |
Collectively evaluated | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
for impairment | |
| 235,652 | | |
| 386,165 | | |
| 19,379 | | |
| 16,983 | | |
| 30,047 | | |
| 2,359 | | |
| — | | |
| 690,585 | |
During the three
months ended December 31, 2023, there were no loans modified to borrowers experiencing financial difficulty. During the three months ended
December 31, 2022, there was one loan modified that was identified as a troubled debt restructuring (“TDR”) and there were
no TDRs that subsequently defaulted within twelve months of modification.
| |
Three Months Ended December 31, 2022 | |
| |
Number of | | |
Investment Before | | |
Investment After | |
| |
Loans | | |
TDR Modification | | |
TDR Modification | |
| |
(Dollars in thousands) | |
One-to four-family residential | |
| 1 | | |
$ | 97 | | |
$ | 107 | |
| |
| | | |
| | | |
| | |
Total | |
| 1 | | |
$ | 97 | | |
$ | 107 | |
There were no residential
loans in the process of foreclosure at December 31, 2023.
NOTE K - DEPOSITS
A summary of deposits
by type of account are summarized as follows:
| |
December 31, | | |
September 30, | |
| |
2023 | | |
2023 | |
| |
(In thousands) | |
| |
| | |
| |
Demand accounts | |
$ | 164,453 | | |
$ | 188,550 | |
Savings accounts | |
| 60,008 | | |
| 62,168 | |
NOW accounts | |
| 119,738 | | |
| 115,182 | |
Money market accounts | |
| 306,886 | | |
| 284,885 | |
Certificates of deposit | |
| 100,547 | | |
| 92,725 | |
Retirement certificates | |
| 11,916 | | |
| 11,943 | |
Total deposits | |
$ | 763,548 | | |
$ | 755,453 | |
Included in Company’s
deposits at December 31, 2023 were $13.8 million in brokered certificates of deposits and $15.5 million in certificate of deposits obtained
through a national deposit listing service. At September 30, 2023 the Company had $13.8 million in brokered certificates of deposits and
$14.0 million in certificate of deposits obtained through a national deposit listing service.
At December 31,
2023 and September 30, 2023, the aggregate deposits in amounts greater than $250,000, which is the maximum amount for federal deposit
insurance, were $456.7 million and $429.9 million, respectively. The estimated amount of deposits that were neither insured nor collateralized
was $120.2 million and $109.3 million at December 31, 2023 and September 30, 2023, respectively.
NOTE L - FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company may use
derivative financial instruments, such as interest rate swaps and interest rate floors and caps, 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 December 31, 2023, the Company did not hold any interest rate floors or collars.
The Company is a party
to interest rate derivatives that are not designated as hedging instruments. Under a program, the Company executes interest rate swaps
with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers
are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company
minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not
meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized
directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties,
which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.
The Company was not required to pledge any collateral for its interest rate swaps with financial institutions at December 31, 2023 and
September 30, 2023.
The following table
presents summary information regarding these derivatives as of December 31, 2023 and September 30, 2023.
| |
Notional
Amount | | |
Average
Maturiy
(Years) | | |
Weighted
Average
Fixed Rate | | |
Weighted Average
Variable Rate | |
Fair Value | |
| |
(Dollars in thousands) | |
December 31, 2023 | |
| | |
| | |
| | |
| |
| |
Classified in Other Assets: | |
| | | |
| | | |
| | | |
| |
| | |
Customer interest rate swaps | |
$ | 35,743 | | |
| 3.9 | | |
| 4.96% | | |
1 Mo. BSBY + 2.44 | |
$ | 1,961 | |
Total | |
$ | 35,743 | | |
| 3.9 | | |
| 4.96% | | |
| |
$ | 1,961 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Classified in Other Liabilities: | |
| | | |
| | | |
| | | |
| |
| | |
3rd Party interest rate swaps | |
$ | 35,743 | | |
| 3.9 | | |
| 4.96% | | |
1 Mo. BSBY + 2.44 | |
$ | 1,961 | |
Total | |
$ | 35,743 | | |
| 3.9 | | |
| 4.96% | | |
| |
$ | 1,961 | |
| |
| | | |
| | | |
| | | |
| |
| | |
September 30, 2023 | |
| | | |
| | | |
| | | |
| |
| | |
Classified in Other Assets: | |
| | | |
| | | |
| | | |
| |
| | |
Customer interest rate swaps | |
$ | 36,020 | | |
| 4.2 | | |
| 4.96% | | |
1 Mo. BSBY + 2.44 | |
$ | 2,579 | |
Total | |
$ | 36,020 | | |
| 4.2 | | |
| 4.96% | | |
| |
$ | 2,579 | |
| |
| | | |
| | | |
| | | |
| |
| | |
Classified in Other Liabilities: | |
| | | |
| | | |
| | | |
| |
| | |
3rd Party interest rate swaps | |
$ | 36,020 | | |
| 4.2 | | |
| 4.96% | | |
1 Mo. BSBY + 2.44 | |
$ | 2,579 | |
Total | |
$ | 36,020 | | |
| 4.2 | | |
| 4.96% | | |
| |
$ | 2,579 | |
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 and are summarized in the below table. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
| |
December 31, | | |
September 30, | |
| |
2023 | | |
2023 | |
| |
(In thousands) | |
| |
| | |
| |
Financial instruments whose contract amounts represent credit risk | |
| | | |
| | |
Letters of credit | |
$ | 1,098 | | |
$ | 1,073 | |
Unused lines of credit | |
| 95,333 | | |
| 89,933 | |
Fixed rate loan commitments | |
| 15,610 | | |
| 3,578 | |
Variable rate loan commitments | |
| 4,969 | | |
| 26,472 | |
Totals | |
$ | 117,010 | | |
$ | 121,056 | |
Upon adoption of ASU 2016-13 on October 1, 2023, the
Company recorded an allowance for credit losses for its unused lines of credit and unfunded commitments totaling $540,000. The Company’s
reserves for off-balance sheet credit losses increased to $637,000 at December 31, 2023 from $0 at September 30, 2023.
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
When used in this filing and in
future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, “anticipate,”
“would be,” “will allow,” “intends to,” “will likely result,” “are expected to,”
“will continue,” “is anticipated,” “estimated,” “projected,” “believes”, or
similar expressions are intended to identify “forward looking statements.” Forward-looking statements are subject to numerous
risks and uncertainties, including, but not limited to, those risks previously disclosed by the Company in Item 1A of its Annual Report
on Form 10-K as may be supplemented by Quarterly Reports on Form 10-Q filed with the SEC, general economic conditions, changes in interest
rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market
acceptance of the Company’s pricing, products and services, and with respect to the loans extended by the Company and real estate
owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect
to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the
risk that significant expense may be incurred by the Company in connection with the resolution of these loans.
The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers
that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit
and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial
performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.
The Company does not undertake,
and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
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.
Please refer to the Company’s Form 10-K for the Company’s critical accounting policies. There were no significant changes
to the Company’s critical accounting policies during the three months ended December 31, 2023.
Comparison of Financial Condition at December 31,
2023 and September 30, 2023
Total Assets. Total
assets increased $9.4 million, or 1.0%, to $916.7 million at December 31, 2023 from $907.3 million at September 30, 2023. The increase
was attributable to higher balances of loans receivable, net of allowance for credit loss, offset by lower interest-earning deposits with
banks.
Interest Earning Deposits.
Interest-earning deposits with banks decreased $21.4 million, or 30.8%, to $48.0 million at December 31, 2023 from $69.4 million at September
30, 2023 resulting primarily from deployment of these fund into loans receivable during the three months ended December 31, 2023.
Loans Receivable.
Total loans receivable increased $31.3 million, or 4.5%, to $729.5 million at December 31, 2023 from $698.2 million at September 30, 2023.
The increase in total loans receivable during the quarter ended December 31, 2023 occurred in commercial real estate loans, which increased
$18.2 million, or 4.7%, to $407.4 million, construction loans, which increased $12.8 million, or 58.5%, to $34.6 million and one-to four-family
residential real estate loans (including home equity loans and lines of credit), which increased $3.5 million, or 1.4%, to $258.2 million.
Partially offsetting these increases were commercial business loans, which decreased $3.1 million, or 10.4%, to $27.0 million and other
loans, which decreased $120,000, or 5.1%, to $2.2 million during the quarter.
As of December 31, 2023, non-owner
occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital was estimated at approximately 267%.
Management believes that Magyar Bank has implemented appropriate risk management practices, including risk assessments, board-approved
underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real
estate portfolio under adverse economic conditions.
Total non-performing loans decreased
$233,000, or 4.6%, to $4.9 million at December 31, 2023 from $5.1 million at September 30, 2023. The decline was attributable to payments
received on one residential mortgage loan that was no longer delinquent more than 90 days at December 31, 2023. The ratio of non-performing
loans to total loans decreased to 0.66% at December 31, 2023 from 0.73% at September 30, 2023.
The allowance for credit losses
was unchanged at $8.3 million during the three months ended December 31, 2023. Upon adoption of ASU 2016-13 on October 1, 2023, the Company’s
allowance for credit losses decreased $492,000. Growth in loans receivable and loan commitments during the quarter resulted in additional
provisions for credit loss totaling $481,000. The Company’s allowance for on-balance sheet credit losses decreased to $7.7 million
at December 31, 2023 from $8.3 million at September 30, 2023 while its reserve for off-balance sheet commitments increased to $637,000
at December 31, 2023 from $0 at September 30, 2023.
The allowance for credit losses
as a percentage of non-performing loans increased to 171.5% at December 31, 2023 from 163.9% at September 30, 2023. Our allowance for
credit losses as a percentage of total loans was 1.14% at December 31, 2023 compared with 1.19% at September 30, 2023. Future increases
in the allowance for credit losses may be necessary based on possible future increases in non-performing loans and charge-offs, the possible
deterioration of collateral values, and the possible deterioration of the current economic environment.
Investment Securities.
At December 31, 2023, investment securities totaled $96.6 million, reflecting an increase of $646,000, or 0.7%, from September 30, 2023.
During the three months ended December 31, 2023, the Company purchased securities totaling $4.0 million and experienced a $584,000 increase
in the market value of its available-for-sale investment securities. Offsetting these increases were repayments from mortgage-backed securities
totaling $1.4 million and the maturity of a $2.5 million U.S. Government-sponsored enterprise debt security. There were no sales of investment
securities during the period.
Investment securities at December
31, 2023 consisted of $66.9 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises,
$23.0 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, $3.5 million in municipal bonds,
and $203,000 in “private-label” mortgage-backed securities. There was no allowance for credit losses for the Company’s
investment securities for the three months ended December 31, 2023.
Deposits. Total
deposits increased $8.1 million, or 1.1%, to $763.5 million at December 31, 2023 from $755.4 million at September 30, 2023.
The inflow in deposits occurred
in money market accounts, which increased $22.0 million, or 7.7%, to $306.9 million, in certificates of deposit (including individual
retirement accounts), which increased $7.8 million, or 7.4%, to $112.5 million and in interest-bearing checking accounts (NOW), which
increased $4.6 million, or 4.0%, to $119.7 million. Partially offsetting these increases were decreases in non-interest bearing checking
accounts, which decreased $24.1 million, or 12.8%, to $164.4 million and savings accounts, which decreased $2.2 million, or 3.5%, to $60.0
million. Included in the certificates of deposit were $13.8 million in brokered certificates of deposit.
Borrowed Funds. Borrowings
decreased $719,000, or 2.4%, to $28.8 million at December 31, 2023 from $29.5 million at September 30, 2023. The Company repaid a matured
long term advance totaling $2.4 million and borrowed a zero- cost, three-year advance totaling $1.7 million the Federal Home Loan Bank
of New York during the three months ended December 31, 2023.
Stockholders’ Equity.
Stockholders’ equity increased $1.7 million, or 1.7%, to $106.5 million at December 31, 2023 from $104.8 million at September 30,
2023. The increase was primarily due to net income of $1.6 million, followed by $440,000 in other comprehensive income, a $354,000 increase
for the tax effected adoption of ASU 2016-13, a $161,000 increase for stock-based compensation and a $50,000 increase for ESOP shares
allocated during the quarter. Partially offsetting these increases were $716,000 in dividends paid ($0.11 per share) and 19,232 shares
repurchased during the quarter totaling $192,000. As a result, the Company’s book value per share increased to $16.01 at December
31, 2023 from $15.70 at September 30, 2023.
Average Balance Sheet for the Three Months Ended
December 31, 2023 and 2022
The following table presents certain
information regarding the Company’s financial condition and net interest income for the three months ended December 31, 2023 and
2022. 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 period indicated. Interest
income includes fees that we consider adjustments to yields.
| |
Three Months Ended December 31, | |
| |
2023 | | |
2022 | |
| |
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 | |
$ | 70,954 | | |
$ | 928 | | |
| 5.19% | | |
$ | 14,984 | | |
$ | 109 | | |
| 2.88% | |
Loans receivable, net | |
| 703,238 | | |
| 10,082 | | |
| 5.69% | | |
| 643,206 | | |
| 7,959 | | |
| 4.91% | |
Securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Taxable | |
| 92,694 | | |
| 478 | | |
| 2.05% | | |
| 97,121 | | |
| 395 | | |
| 1.61% | |
Tax-exempt (1) | |
| 3,370 | | |
| 18 | | |
| 2.15% | | |
| 3,370 | | |
| 18 | | |
| 2.15% | |
FHLBNY stock | |
| 2,290 | | |
| 55 | | |
| 9.53% | | |
| 1,613 | | |
| 24 | | |
| 6.00% | |
Total interest-earning assets | |
| 872,546 | | |
| 11,561 | | |
| 5.26% | | |
| 760,294 | | |
| 8,505 | | |
| 4.44% | |
Noninterest-earning assets | |
| 49,628 | | |
| | | |
| | | |
| 48,415 | | |
| | | |
| | |
Total assets | |
$ | 922,174 | | |
| | | |
| | | |
$ | 808,709 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest-bearing liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Savings accounts (2) | |
$ | 60,661 | | |
| 87 | | |
| 0.57% | | |
$ | 78,263 | | |
| 82 | | |
| 0.41% | |
NOW accounts (3) | |
| 413,731 | | |
| 3,156 | | |
| 3.03% | | |
| 325,295 | | |
| 1,177 | | |
| 1.44% | |
Time deposits (4) | |
| 107,207 | | |
| 834 | | |
| 3.09% | | |
| 79,535 | | |
| 215 | | |
| 1.07% | |
Total interest-bearing deposits | |
| 581,599 | | |
| 4,077 | | |
| 2.78% | | |
| 483,093 | | |
| 1,474 | | |
| 1.21% | |
Borrowings | |
| 29,604 | | |
| 236 | | |
| 3.16% | | |
| 19,067 | | |
| 136 | | |
| 2.83% | |
Total interest-bearing liabilities | |
| 611,203 | | |
| 4,313 | | |
| 2.80% | | |
| 502,160 | | |
| 1,610 | | |
| 1.27% | |
Noninterest-bearing liabilities | |
| 204,225 | | |
| | | |
| | | |
| 206,197 | | |
| | | |
| | |
Total liabilities | |
| 815,428 | | |
| | | |
| | | |
| 708,357 | | |
| | | |
| | |
Retained earnings | |
| 106,746 | | |
| | | |
| | | |
| 100,352 | | |
| | | |
| | |
Total liabilities and retained earnings | |
$ | 922,174 | | |
| | | |
| | | |
$ | 808,709 | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Tax-equivalent basis adjustment | |
| | | |
| (4 | ) | |
| | | |
| | | |
| (4 | ) | |
| | |
Net interest and dividend income | |
| | | |
$ | 7,244 | | |
| | | |
| | | |
$ | 6,891 | | |
| | |
Interest rate spread | |
| | | |
| | | |
| 2.46% | | |
| | | |
| | | |
| 3.17% | |
Net interest-earning assets | |
$ | 261,343 | | |
| | | |
| | | |
$ | 258,134 | | |
| | | |
| | |
Net interest margin (5) | |
| | | |
| | | |
| 3.29% | | |
| | | |
| | | |
| 3.60% | |
Average interest-earning assets to
average interest-bearing liabilities | |
| 142.76% | | |
| | | |
| | | |
| 151.40% | | |
| | | |
| | |
(1) Calculated using the Company's 21% federal tax rate.
(2) Includes passbook savings, money market passbook and club accounts.
(3) Includes interest-bearing checking and money market accounts.
(4) Includes certificates of deposits and individual retirement accounts.
(5) Calculated as annualized net interest income divided by average total interest-earning assets.
Comparison of Operating Results for the Three Months
Ended December 31, 2023 and 2022
Net Income. Net
income decreased $158,000, or 8.7%, to $1,652,000 for the three-month period ended December 31, 2023 compared with net income of $1,810,000
for the three-month period ended December 31, 2022. The decrease was due to higher provisions for credit loss and other expenses, partially
offset by higher net interest income.
Net Interest and Dividend
Income. Net interest and dividend income increased $353,000, or 5.1%, to $7.2 million for the three months ended December 31,
2023 from $6.9 million for the three months ended December 31, 2022. The increase was attributable to a $112.3 million increase in the
average balance of interest-earning assets between periods, partially offset by a 31 basis point decrease in the Company’s net interest
margin to 3.29% for the three months ended December 31, 2023 from 3.60% for the three months ended December 31, 2022.
Interest and Dividend Income.
Interest and dividend income increased $3.1 million, or 35.9%, to $11.6 million for the three months ended December 31, 2023 compared
with $8.5 million for the three months ended December 31, 2022. The increase was attributable to an 82 basis point increase in the yield
on earning assets to 5.26% for the three months ended December 31, 2023 from 4.44% for the three months ended December 31, 2022 as well
as a $112.3 million, or 14.8%, increase in the average balance of interest-earning assets. The increase in yield on the Company’s
assets was attributable to higher market interest rates between periods.
The average balance of loans receivable,
net of allowance for loan loss, increased $60.0 million to $703.2 million during the three months ended December 31, 2023 from $643.2
million during the three months ended December 31, 2022 while the yield on loans receivable increased 78 basis points to 5.69% for the
three months ended December 31, 2023 from 4.91% for the three months ended December 31, 2022 due to higher market interest rates. The
higher average balance and yield accounted for a $2.1 million, or 26.7%, increase in loan interest income between periods.
Interest earned on
investment securities, including interest-earning deposits and excluding FHLB stock, increased $902,000, or 174.1%, to $1.4 million
for the quarter ended December 31, 2023 from $518,000 for the prior year quarter. A 160 basis point increase in the yield on such
assets to 3.39% for the three months ended December 31, 2023 from 1.79% for the three months ended December 31, 2022, and the
average balance of investment securities and interest-earning deposits increased by $51.5 million, or 44.6%, to $167.0 million for
the quarter ended December 31, 2023.
Interest Expense.
Interest expense increased $2.7 million, or 167.9%, to $4.3 million for the three months ended December 31, 2023 from $1.6 million for
the three months ended December 31, 2022. The cost of interest-bearing liabilities increased 153 basis points to 2.80% for the three months
ended December 31, 2023 compared with 1.27% for the three months ended December 31, 2022 resulting primarily from higher market interest
rates. In addition, the average balance of interest-bearing liabilities increased $109.0 million, or 21.7%, to $611.2 million.
The average balance of interest-bearing
deposits increased $98.5 million, or 20.4%, to $581.6 million for the quarter ended December 31, 2023 from $483.0 million for the quarter
ended December 31, 2022, while the average cost of such deposits increased 157 basis points to 2.78% from 1.21%. As a result, interest
paid on interest-bearing deposits increased $2.6 million to $4.1 million for the three months ended December 31, 2023 compared with $$1.5
million for the three months ended December 31, 2022 due to higher market interest rate environment.
Interest paid on borrowings increased
$100,000, or 73.5%, to $236,000 for the three months ended December 31, 2023 from $136,000 for the prior year period. The increase was
the result of a 33 basis point increase in the cost of borrowings to 3.16% for the three months ended December 31, 2023 from 2.83% for
the three months ended December 31, 2022. Average balance of borrowings increased $10.5 million to $29.6 million for the three months
ended December 31, 2023 compared to $19.1 million for the three months ended December 31, 2022.
Provision for Credit Losses.
The Company recorded a provision of $481,000 for the three months ended December 31, 2023 compared to $317,000 for the three months ended
December 31, 2022. The higher provisions resulted from growth in the Company’s loan portfolio during the three months ended December
31, 2023, specifically in commercial real estate and construction loans. The Company recorded $461 in net recoveries during the three
months ended December 31, 2023 compared with $0 in net recoveries during the three months ended December 31, 2022.
Other Income. Other
income increased $12,000, or 2.0%, to $609,000 during the three months ended December 31, 2023 compared to $597,000 for the three months
ended December 31, 2022. Higher service charge income from loan prepayment penalties and a $60,000 gain on the sale of land during the
quarter were partially offset by lower interest rate swap fees and gains on the sale of SBA loans.
Other Expenses. Other
expenses increased $439,000, or 9.6%, to $5.0 million during the three months ended December 31, 2023.
The increase in other expense
was primarily attributable to higher compensation and benefit expense, which increased $226,000, or 8.6%, to $2.8 million, due to fewer
open positions between periods and the addition of a commercial lender in September 2023. Also contributing to the increase were higher
FDIC deposit insurance premiums and other expenses. Deposit insurance premiums increased $49,000, or 90.7%, from deposit growth
and higher insurance assessment rates implemented by the FDIC for all insured institutions effective January 1, 2023. Other expenses increased
$100,000, or 20.3%, from higher loan origination and servicing costs, higher losses on fraudulent checks, and higher OREO expenses.
Income Tax Expense.
The Company recorded tax expense of $700,000 on pre-tax income of $2.4 million for the three months ended December 31, 2023, compared
to $780,000 on pre-tax income of $2.6 million for the three months ended December 31, 2022. The Company’s effective tax rate for
the three months ended December 31, 2023 was 29.8% compared with 30.1% for the three months ended December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company’s liquidity
is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The
Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new
deposits, other borrowings, and new advances from the FHLBNY. Based on eligible loan collateral pledged to the FHLBNY at December 31,
2023, we had an aggregate borrowing capacity of $122.9 million. There has been no material adverse change during the three months ended
December 31, 2023 in the ability of the Company and its subsidiaries to fund their operations.
At December 31, 2023, the Company
had commitments outstanding under letters of credit totaling $1.1 million, commitments to originate loans totaling $20.6 million, and
commitments to fund undisbursed balances of closed loans and unused lines of credit totaling $95.3 million. There has been no material
change during the three months ended December 31, 2023 in any of the Company’s other contractual obligations or commitments to make
future payments.
Capital Requirements
At December 31, 2023, the Bank’s
Tier 1 capital as a percentage of the Bank’s total assets was 10.81%, and total qualifying capital as a percentage of risk-weighted
assets was 15.81%.
Item 3- Quantitative
and Qualitative Disclosures about Market Risk
Not
applicable to smaller reporting companies.
Item 4 – 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.
There has been no change in the
Company's internal control over financial reporting during the three months ended December 31, 2023 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
None.
There were no material
changes to the risk factors relevant to the Company’s operations as described in the Company’s Annual Report on Form 10-K
for the fiscal year ended September 30, 2023 filed on December 15, 2023.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| c.) | The Company repurchased 19,232 shares of its common stock during the three months ended December 31, 2023.
Through December 31, 2023, the Company held 442,873 shares in treasury that were repurchased at a weighted average price of $11.51 pursuant
to stock repurchase plans. On December 8, 2022, the Company announced a stock repurchase program of up to 5% of its outstanding shares
of common stock, or 337,146 shares, 217,084 shares of which remained subject to repurchase under the plan. |
The following table
reports information regarding repurchases of our common stock during the three months ended December 31, 2023.
| |
| | |
| | |
Remaining Number | |
| |
Total Number | | |
Average | | |
of Shares That | |
| |
of Shares | | |
Price Paid | | |
May be Purchased | |
Period | |
Purchased | | |
Per Share | | |
Under the Plan | |
October 1, 2023 through October 31, 2023 | |
| 7,541 | | |
$ | 9.52 | | |
| 228,775 | |
November 1, 2023 through November 30, 2023 | |
| 1,700 | | |
| 9.84 | | |
| 227,075 | |
December 1, 2023 through December 31, 2023 | |
| 9,991 | | |
| 10.33 | | |
| 217,084 | |
Total | |
| 19,232 | | |
| 9.97 | | |
| | |
| Item 3. | Defaults Upon Senior Securities |
None
| Item 4. | Mine Safety Disclosures |
Not applicable.
Signatures
Pursuant to the requirements of
the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
MAGYAR BANCORP, INC. |
|
(Registrant) |
|
|
|
|
|
|
|
|
Date: February 14, 2024 |
/s/ John S. Fitzgerald |
|
John S. Fitzgerald |
|
President and Chief Executive Officer |
|
|
|
|
|
|
Date: February 14, 2024 |
/s/ Jon R. Ansari |
|
Jon R. Ansari |
|
Executive Vice President and Chief Financial Officer |
0.01
0.01
false
--09-30
Q1
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I, John S. Fitzgerald, certify that:
I, Jon R. Ansari, certify that:
18 U.S.C. SECTION 1350,
In connection with the quarterly report of Magyar
Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, John S. Fitzgerald, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
18 U.S.C. SECTION 1350,
In connection with the quarterly report of Magyar
Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Jon R. Ansari, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: