424B3 1 d132199d424b3.htm 424B3 424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-254282

 

Prospectus Supplement

MAGYAR BANK 401(K) PROFIT SHARING PLAN

Offering of Participation Interests in up to 981,455 Shares of

Magyar Bancorp, Inc. common stock

 

 

Magyar Bancorp, Inc., a Delaware corporation that we refer to as “Magyar Bancorp” throughout this prospectus supplement, is offering shares of common stock for sale at $10.00 per share in connection with the conversion of Magyar Bancorp, MHC, a New Jersey-chartered mutual holding company we refer to as the “MHC” from the mutual holding company to the stock holding company form of organization. The shares being offered represent an ownership interest in Magyar Bancorp, for which the MHC presently owns more than 50% of the outstanding shares. Magyar Bancorp’s common stock currently trades on the Nasdaq Global Market under the trading symbol “MGYR.” Magyar Bancorp’s common stock will continue to be quoted on the Nasdaq Global Market (NASDAQ) under the trading symbol “MGYR” upon conclusion of the stock offering.

The Bank has registered on behalf of the 401(k) Plan up to 981,455 participation interests so that the trustee of the 401(k) Plan could acquire up to 981,455 shares of Magyar Bancorp common stock in the offering, at the purchase price of $10.00 per share and after the offering at the prevailing market price. Of the maximum that may be acquired by the 401(k) Plan, the shares available to purchase in the 401(k) Plan in the offering will be reduced by the number of shares of Magyar Bancorp currently held in the 401(k) Plan and the aggregate amount of participant loans outstanding. This prospectus supplement relates to the election of Plan participants to direct the trustee of the 401(k) Plan to invest all or a portion of their 401(k) Plan accounts in the Magyar Bancorp Stock Fund on the date of the stock offering.

The prospectus of Magyar Bancorp, dated May 14, 2021, accompanies this prospectus supplement. It contains detailed information regarding the stock offering of Magyar Bancorp common stock and the financial condition, results of operations and business of Magyar Bank. This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

 

 

For a discussion of risks that you should consider, see “Risk Factors” beginning on page 17 of the accompanying prospectus and “Notice of Your Rights Concerning Employer Securities” below.

The interests in the 401(k) Plan and the offering of the shares of Magyar Bancorp common stock have not been approved or disapproved by the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the New Jersey Department of Banking and Insurance nor any other federal or state securities regulator. Any representation to the contrary is a criminal offense.

The securities offered in this prospectus supplement and in the prospectus are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by Magyar Bancorp of participation interests in shares of Magyar Bancorp common stock pursuant to the 401(k) Plan. No one may use this prospectus supplement to re-offer or resell participation interests or shares of Magyar Bancorp common stock acquired through the 401(k) Plan.

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. Magyar Bancorp, the Bank and the 401(k) Plan have not authorized anyone to provide you with information that is different.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of Magyar Bancorp common stock or participation interests representing an ownership interest in Magyar Bancorp common stock shall under any circumstances imply that there has been no change in the affairs of Magyar Bancorp or any of its subsidiaries or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this prospectus supplement is May 14, 2021.


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TABLE OF CONTENTS

 

RISK FACTORS

     S-1  

THE OFFERING

     S-1  

Securities Offered

     S-1  

Stock Purchase Fund

     S-2  

Purchase Priorities

     S-2  

Purchases in the Offering and Oversubscriptions

     S-3  

Composition of Magyar Bancorp Stock Fund

     S-4  

Value of the 401(k) Plan Assets

     S-4  

Election to Purchase Stock in the Offering

     S-4  

How to Order Stock in the Offering

     S-4  

Order Deadline

     S-6  

Irrevocability of Transfer Direction

     S-6  

Other Purchases in Your Account During the Offering Period

     S-7  

Additional Purchases of Magyar Bancorp Stock Fund Units after the Offering

     S-7  

Purchase Price of Common Stock in the Offering and After the Offering

     S-7  

Nature of a Participant’s Interest in the Common Stock

     S-7  

Voting Rights of Common Stock

     S-7  

DESCRIPTION OF THE 401(k) PLAN

     S-8  

Introduction

     S-8  

Eligibility and Participation

     S-8  

Contributions under the 401(k) Plan

     S-9  

Limitations on Contributions

     S-10  

Benefits under the 401(k) Plan

     S-10  

Investment of Contributions and Account Balances

     S-11  

Description of the Investment Funds

     S-12  

Vanguard Value Index Admiral Fund

     S-12  

Large Cap S&P 500 Index Separate Account-Z

     S-13  

Vanguard Growth Index Admiral Fund

     S-13  

Wells Fargo Special Mid-Cap Value R6 Fund

     S-13  

Vanguard Mid Cap Index Admiral

     S-13  

BlackRock Mid-Cap Growth Equity K Fund

     S-13  

Fidelity Advisor Small Cap Value Z Fund

     S-13  

Vanguard Small Cap Index Admiral Fund

     S-13  

Lord Abbot Developing Growth R6 Fund

     S-13  

American Funds New World R6 Fund

     S-14  

MFS International Diversification R6 Fund

     S-14  

Janus Henderson Balanced N Fund

     S-14  

Vanguard International Growth Admiral Fund

     S-14  

Vanguard Target Date Retirement Income Inv. Fund

     S-14  

Vanguard Target Retirement 2015 Fund

     S-14  

Vanguard Target Retirement 2020 Fund

     S-14  

Vanguard Target Retirement 2025 Fund

     S-15  

Vanguard Target Retirement 2030 Fund

     S-15  

Vanguard Target Retirement 2035 Fund

     S-15  

Vanguard Target Retirement 2040 Fund

     S-15  

Vanguard Target Retirement 2045 Fund

     S-15  

Vanguard Target Retirement 2050 Fund

     S-15  

Vanguard Target Retirement 2055 Fund

     S-15  

Vanguard Target Retirement 2060 Fund

     S-15  

Vanguard Target Retirement 2065 Fund

     S-16  

Loomis Sayles Global Allocation N Fund

     S-16  

PIMCO Income Institutional Fund

     S-16  

PGIM High Yield R6 Fund

     S-16  

iShares US Aggregate Bond Index K Fund

     S-16  

DFA Inflation Protected Securities I Fund

     S-16  

Magyar Bancorp Stock Fund

     S-17  

Magyar Bancorp Stock Fund

     S-17  

Withdrawals from the 401(k) Plan

     S-17  


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RISK FACTORS

In addition to considering the material risks disclosed under “Risk Factors” beginning on page 17 of the attached prospectus, you should also consider the following:

If you elect to purchase Magyar Bancorp common stock using your 401(k) Plan account balance and the stock offering is oversubscribed, you will bear the risk of price changes in the investment funds of the 401(k) Plan.

If you elect to purchase Magyar Bancorp common stock using your 401(k) Plan account balance, you will need to access your 401(k) Plan account on-line at www.principal.com and designate the applicable dollar amount or percentage of your existing investment funds (other than the Magyar Bancorp Stock Fund) from which you would like to withdraw amounts sufficient to purchase the amount of shares you wish to purchase within the 401(k) Plan. You will also need to elect to transfer the amount you have withdrawn to the new Stock Purchase Fund. If the stock offering is oversubscribed (i.e., there are more orders for Magyar Bancorp common stock than shares available for sale in the stock offering) and the 401(k) Plan trustee cannot use any or all of the funds you allocate to purchase Magyar Bancorp common stock, the funds that cannot be invested in Magyar Bancorp common stock, and any interest earned on such funds, will be reinvested in your existing investment funds of the 401(k) Plan (other than the existing Magyar Bancorp Stock Fund), according to your then existing investment election (i.e., in proportion to your investment direction for future contributions). During the period from when the 401(k) Plan trustee sells a percentage of each of your investment funds until reinvestment of some or all of those funds back into your investment funds as a result of an oversubscription, you will bear the risk of price changes in the investment funds. It is possible that during this period some or all of the investment funds may have increased in value more than the amount of any interest you may have earned on the reinvested funds before reinvestment. See “The Offering – Purchases in the Offering and Oversubscriptions” in this prospectus supplement.

THE OFFERING

 

Securities Offered

Magyar Bancorp is offering participants in the Magyar Bank 401(k) Profit Sharing Plan (the “401(k) Plan”) the opportunity to purchase stock of Magyar Bancorp through the 401(k) Plan by purchasing “participation interests,” through the Stock Purchase Fund established under the 401(k) Plan in connection with the stock offering (“offering”). The 401(k) Plan may acquire up to 981,455 shares of Magyar Bancorp common stock in the stock offering at the purchase price of $10.00 per share (reduced by shares already held in the Employer Stock Fund and amounts then applied to participant loans) and after the offering at the prevailing market price. Your investment in Magyar Bancorp common stock in connection with the stock offering through the Stock Purchase Fund is subject to the purchase priorities contained in the Plan of Conversion and Reorganization of Magyar Bancorp, MHC, Magyar Bancorp, Inc. and Magyar Bank (the “Plan of Conversion”).

 

  Information with regard to the 401(k) Plan is contained in this prospectus supplement and information with regard to the financial condition, results of operations and business of Magyar Bancorp is contained in the accompanying prospectus. The address of the principal executive office of Magyar Bancorp and the Bank is 400 Somerset Street, New Brunswick, New Jersey 08901. The Bank’s telephone number is (732) 342-7600.

 

  Any questions about purchasing Magyar Bancorp stock in the offering through the 401(k) Plan or about this prospectus supplement should be addressed to Michelle Foster, First Vice President, Human Resources, Magyar Bank, 400 Somerset Street, New Brunswick, New Jersey, 08901, telephone number: (732) 342-7600 ext. 108.


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Stock Purchase Fund

In connection with the conversion and stock offering, you may elect to designate all or a percentage of your 401(k) Plan account balance percent, reduced by the amount you then have invested in the Magyar Bancorp Stock Fund and any participant loans you have outstanding) to the Stock Purchase Fund, to be used to purchase common stock of Magyar Bancorp issued in the stock offering at $10 per share. In making this determination, you should carefully consider the information set forth on page S-19 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities – The Importance of Diversifying Your Retirement Savings.” The trustee of the Stock Purchase Fund will purchase common stock of Magyar Bancorp at $10.00 per share to be held as stock in accordance with your directions.

 

Purchase Priorities

401(k) Plan participants are eligible to direct a transfer of funds to the Stock Purchase Fund. However, such directions are subject to the purchase priorities and purchase limitations in the Plan of Conversion, which provides for a subscription offering and a community offering, as described below.

 

  In the offering, the purchase priorities are as follows and apply in the case more shares are ordered than are available for sale (an “oversubscription”):

 

  Subscription offering:

 

  (1)

First, to depositors of Magyar Bank with $50 or more at the close of business on December 31, 2019.

 

  (2)

Second, to Magyar Bank’s and Magyar Bancorp’s tax-qualified plans, including the employee stock ownership plan and the 401(k) Plan.

 

  (3)

Third, to depositors of Magyar Bank with $50 or more on deposit at the close of business on March 31, 2021.

 

  (4)

Fourth, to depositors of Magyar Bank at the close of business on May 3, 2021 who do not qualify in one of the foregoing categories.

 

  If there are shares remaining after all of the orders in the subscription offering have been filled, shares will be offered in a community offering with a preference to natural persons residing in the New Jersey Counties of Middlesex, Somerset, Monmouth, Hunterdon and Union.

 

  If you fall into subscription offering categories (1), (3), or (4) above, you have subscription rights to purchase Magyar Bancorp common stock in the subscription offering. You will separately receive offering materials in the mail, including a Stock Order Form. If you wish to purchase stock outside of the 401(k) Plan, you must complete and submit the original Stock Order Form and payment, before the Subscription Offering deadline.

 

  Additionally, or instead of placing an order outside of the 401(k) Plan through a Stock Order Form, as a 401(k) Plan participant, you may place an order for common stock through the 401(k) Plan, by going on-line to www.principal.com to place your order in the manner described below under “The Offering How to Order Stock in the Offering.”

 

S-2


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Purchases in the Offering and Oversubscriptions

The trustee of the 401(k) Plan will purchase Magyar Bancorp common stock in accordance with your directions. Once you make your election, the amount that you elect to transfer from your existing investment options for the purchase of Magyar Bancorp common stock in connection with the stock offering will be removed from your existing investment options and transferred to the Stock Purchase Fund, which is an interest-bearing cash account in the 401(k) Plan, pending the formal closing of the stock offering, several weeks later. NOTE: any amount that you have invested in Magyar Bancorp common stock in the Magyar Bancorp Stock Fund will continue to be invested in Magyar Bancorp common stock but will be converted pursuant to the exchange ratio discussed in the prospectus to a higher or lower number of shares of Magyar Bancorp. The exchange ratio ranges from 0.9027 shares at the minimum of the offering range to 1.2213 shares at the maximum of the offering range and will generally preserve in Magyar Bancorp the percentage ownership of public stockholders in Magyar Bancorp immediately before the completion of the conversion. For further information on the exchange ratio see “How We Determined the Offering Range, the Exchange Ratio and the $10 Per Share Purchase Price” on page 10 of the prospectus.

 

  After the end of the stock offering period, we will determine whether all or any portion of your order may be filled (based on your purchase priority as described above and whether the stock offering is oversubscribed). The amount that can be used toward your order will be applied to the purchase of participation interests and will be denominated in shares of Magyar Bancorp common stock in the 401(k) Plan.

 

  In the event the stock offering is oversubscribed, i.e. there are more orders for shares of Magyar Bancorp common stock than shares available for sale in the stock offering, and the trustee is unable to use the full amount allocated by you to purchase shares of common stock in the stock offering, the amount that cannot be invested in shares of common stock, and any interest earned, will be reinvested in the other investment funds of the 401(k) Plan in accordance with your then existing investment election (in proportion to your investment direction for future contributions). If you do not have an existing election as to the investment of future contributions, then such amounts will be transferred to and invested in applicable Vanguard Target Retirement Fund, based on your retirement age assumption, pending your reinvestment in another fund of your choice.

 

  If you choose not to direct the investment of your account balances towards the purchase of any shares in the offering, your account balances will remain in the investment funds of the 401(k) Plan as previously directed by you.

 

  At the conclusion of the offering, once the eligible assets in the Stock Purchase Fund have been used to purchase Magyar Bancorp common stock, the shares will be transferred to and held in the Magyar Bancorp Stock Fund. Your interests in the Magyar Bancorp Stock Fund will be referred to as participation interests and will be denominated in shares of Magyar Bancorp common stock.

 

S-3


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Composition of Magyar Bancorp Stock Fund

The value of one participation interest will equal one share of common stock of Magyar Bancorp, which will be initially valued at $10. The shares currently held by the Magyar Bancorp Stock Fund will be exchanged in the stock offering for new shares of Magyar Bancorp pursuant to an exchange ratio which will result in an initial value at the formal close of the offering of $10 per share. Shares purchased by the 401(k) Plan in the offering as well as shares previously invested in Magyar Bancorp common stock will be held in the Magyar Bancorp Stock Fund. The Magyar Bancorp Stock Fund will invest 100% of the amounts allocated to the fund in common stock of Magyar Bancorp. Each share of common stock will be initially valued at $10.00, the offering price of the common stock in the offering.

 

  Following the stock offering, each day, as 401(k) Plan participants begin to trade their common stock in the 401(k) Plan in market transactions, the aggregate value of the Magyar Bancorp Stock Fund will increase or decrease depending on the total number of shares held in the Magyar Bancorp Stock Fund and the then market-value of the shares. The change in share value reflects the day’s change in Magyar Bancorp common stock price. Your account in the Magyar Bancorp Stock Fund will be reported to you on your regular 401(k) Plan participant statements. You can also go on-line at any time to www.principal.com or call 1-800-547-7754 to review your account balances.

 

Value of the 401(k) Plan Assets

As of December 31, 2020, the market value of the assets of the 401(k) Plan attributable to active and former employees of the Bank was approximately $9,814,552. The 401(k) Plan administrator informed each participant of the value of his or her account balance under the 401(k) Plan as of December 31, 2020, however participants can also go on-line and look at their account balances at any time.

 

Election to Purchase Stock in the Offering

If you wish to use your account balance in the 401(k) Plan (reduced by amounts already invested in the Magyar Bancorp Stock Fund and any participant loans you have outstanding) to purchase Magyar Bancorp common stock issued in the offering, you can follow the steps below on this page S-4 under “The Offering How to Order Stock in the Offering.” In making this determination, you should carefully consider the information set forth on page S-19 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities – The Importance of Diversifying Your Retirement Savings.”

 

How to Order Stock in the Offering

You can elect to transfer (in whole percentages or dollar amounts) all or a portion of your account balance in the 401(k) Plan to the Stock Purchase Fund. Please note the following conditions concerning this election:

 

   

You can direct up to up to 100% of your current account balance to the Stock Purchase Fund (reduced by amounts you currently have invested in the Magyar Bancorp Stock fund and the value of any participant loans you have outstanding).

 

   

Your election is subject to a minimum purchase of 25 shares which equates to $250.00.

 

   

Your election, plus any order you placed outside the 401(k) Plan, is subject to a maximum purchase of 40,000 shares which equates to $400,000 or 50,000 shares ($500,000) if you purchase in concert with an associate or a group of persons acting in concert (as more fully described in the prospectus).

 

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The election period closes at 4:00 p.m., Eastern Time, June 11, 2021.

 

   

Your election to purchase Magyar Bancorp common stock in the offering through the 401(k) Plan will be accepted by Principal Financial Group, the new third party plan administrator. After your election is accepted by Principal Financial Group, it will be rounded down to the closest dollar amount divisible by $10.00. The difference will remain in the Stock Purchase Fund until the offering closes and the shares are acquired by the 401(k) Plan.

 

   

At the formal close of the offering, which will occur several weeks later, the shares purchased in the Stock Purchase Fund based on your election will be transferred to the Magyar Bancorp Stock Fund and any remaining funds from your account will be transferred out of the Stock Purchase Fund for investment in the other funds under the 401(k) Plan, based on your election currently on file for future contributions. If you do not have an election on file for future contributions, any remaining funds will be transferred to the applicable Vanguard Target Retirement Fund, based on your retirement age assumption, to be reinvested by you in your discretion.

 

   

During the stock offering period, you will continue to have the ability to transfer amounts not invested in the Stock Purchase Fund among all the other investment funds on a daily basis. However, you will not be permitted to change the investment amounts that you designated to be transferred to the Stock Purchase Fund.

 

   

The amount you elect to transfer to the purchase of Magyar Bancorp common stock needs to be segregated and held until the offering closes. Therefore, this money is not available for distributions, loans or withdrawals until the offering is completed, which will be several weeks after the closing of the subscription offering period.

 

  Follow these steps to elect to use all or part of your account balance in the 401(k) Plan to purchase shares in the stock offering:

 

   

Go to www.principal.com and log into our 401(k) Plan account. In Account Login, click on drop down and choose “Personal” then “GO.” Enter your Username and Password. If you haven’t established your Username and Password, click on the line “Establish your Username and Password” and follow the prompts.

 

   

On your Personal Summary Page, choose the line for the Magyar Bank 401(k) Profit sharing Plan.

 

   

When you reach “Your Account Overview,” click on “Investments” across the top navigation of the screen, and then click on “Change Investments.”

 

   

When you reach the “Change Investments” screen, click on the box titled “Move Balances.” Then click on “Make a Transfer.”

 

   

If you want to transfer a percentage of some of your account investments, enter the percentage you would like to transfer “From” each investment. If you would like to transfer a dollar amount, click on “Advanced Transfer Features” and choose “Dollars” then enter the amount you would like to transfer in dollars, “From” each investment. When you have completed transferring “From” each investment, choose “Continue.”

 

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Enter the percentage or dollars you will be transferring into the Stock Purchase Fund. The Stock Purchase Fund is a money market investment that will hold the funds until the offering is concluded. All of the funds that you transferred “From” other investments must be transferred to another investment. The total percentage must be 100% or if transferring dollars, all of the dollars must be transferred “To” the Magyar Bancorp Stock Fund.

 

   

When you have completed the “To” portion of the transaction, click continue. You will be taken to a confirmation page. Please review your transaction for accuracy, if you need to make changes, click on “Cancel” or “Start Over” or “Previous” to make changes. If the information is correct, click on the box, “I confirm the information above and authorize Principal Financial Group to process this request.” You will receive a communication in your Message Center confirming your transaction.

 

   

You must also complete the 401(k) Stock Information Form and return a copy to Michelle Foster, First Vice President, Human Resources, Magyar Bank, Somerset Street, New Brunswick, New Jersey, 08901 by hand delivery, by e-mail to mfoster@magbank.com or by fax to 732-565-9953 no later than 4:00 p.m., Eastern Time, on June 11, 2021.

 

Order Deadline

If you wish to purchase Magyar Bancorp common stock with your 401(k) Plan account balances (reduced by any amount you have invested in the Magyar Bancorp Stock Fund and any participant loan you have outstanding), you must make your election on-line at www.principal.com and return your Stock Information Form to Michelle Foster by hand delivery, by e-mail to mfoster@magbank.com or by fax to 732-565-9953; no later than 4:00 p.m., Eastern Time, on June 11, 2021. To allow for processing, this deadline is prior to the subscription offering period deadline (which is June 18, 2021). If you have any questions with respect to the Stock Information Form, please contact Michelle Foster, First Vice President, Human Resources, Magyar Bank, Somerset Street, New Brunswick, New Jersey, 08901, telephone number: (732) 342-7600 ext. 108.

 

  IF YOU FAIL TO BOTH MAKE YOUR ON-LINE STOCK PURCHASE ELECTION AND RETURN YOUR 401(K) PLAN STOCK INFORMATION FORM BY 4:00 P.M. EASTERN TMIME ON JUNE 11, 2021, YOUR ELECTION WILL NOT BE PROCESSED AND YOUR ORDER WILL BE VOID.

 

Irrevocability of Transfer Direction

You may not revoke your election to transfer all or a portion of your account to the Stock Purchase Fund once it has made. You will, however, continue to have the ability to transfer amounts not directed towards the purchase of Magyar Bancorp common stock in the offering (including amounts currently invested in the Magyar Bancorp Stock Fund) among all of the other investment funds on a daily basis.

 

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Other Purchases in Your Account During the Offering Period

Whether or not you choose to purchase Magyar Bancorp common stock in the offering through the 401(k) Plan, you will at all times have complete access to those amounts in your account that you do not apply towards purchases in the offering. For example, you will be able to purchase other funds within the 401(k) Plan with that portion of your account balance that you do not apply towards purchases in the offering during the offering period. Such purchases will be made at the prevailing market price through telephone transfers and internet access to your account. Note: You can only purchase Magyar Bancorp common stock in the offering through the 401(k) Plan by making an on-line election at www.principal.com. You cannot purchase Magyar Bancorp common stock in the offering by means of telephone transfers. That portion of your 401(k) Plan account balance that you elect to apply towards the purchase of Magyar Bancorp common stock in the offering will be irrevocably committed to such purchase until the offering has concluded and the shares have been acquired by the 401(k) Plan.

 

Additional Purchases of Magyar Bancorp Stock Fund Units after the Offering

After the offering closes, you will have the opportunity to direct the 401(k) Plan trustee to sell any shares that you purchased in the offering. Special restrictions may apply to transfers directed to and from the Magyar Bancorp Stock Fund by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal shareholders of Magyar Bancorp.

 

  You will also have the opportunity to purchase any additional shares in the open market, to the extent shares are available. Magyar Bancorp common stock is listed on the Nasdaq Global Market under the trading symbol “MGYR”.

 

Purchase Price of Common Stock in the Offering and After the Offering

The trustee will pay $10 per share of common stock in the offering, which will be the same price paid by all other persons for a share of common stock in the offering. No sales commission will be charged for common stock purchased in the offering. After the offering, any additional purchases will be made in the open market at the prevailing price. In addition, a brokerage commission of $0.05 per share of stock purchased will be charged.

 

Nature of a Participant’s Interest in the Common Stock

The common stock acquired by the trustee at your direction will be allocated to your account and will be held in the Magyar Bancorp Stock Fund.

 

Voting Rights of Common Stock

You may direct the trustee as to how to vote your shares of Magyar Bancorp common stock held in the Magyar Bancorp Stock Fund. If the trustee does not receive your voting instructions, the trustee will be directed by Magyar Bank to vote your shares in the same proportion as the voting instructions received from other participants related to their shares of Magyar Bancorp common stock held by the 401(k) Plan, provided that such vote is made in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). All voting instructions will be kept confidential.

 

 

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DESCRIPTION OF THE 401(k) PLAN

Introduction

Magyar Bank originally adopted the 401(k) Plan in1994. The 401(k) Plan was last restated in 2021 in connection with the transfer of the 401(k) Plan from Transamerica to Principal Financial Group. In connection with the conversion of Magyar Bank from the mutual to stock form of organization as the wholly owned subsidiary of Magyar Bancorp, Magyar Bank amended the 401(k) Plan to allow participants to purchase common stock of Magyar Bancorp with their 401(k) Plan accounts. The 401(k) Plan is a tax-qualified plan with a cash or deferred compensation feature established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).

The Bank intends that the 401(k) Plan, in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code. The Bank will adopt any amendments to the 401(k) Plan that may be necessary to ensure the continuing qualified status of the 401(k) Plan under the Code and applicable Treasury Regulations.

Employee Retirement Income Security Act of 1974 (“ERISA”). The 401(k) Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning of ERISA. As such, the 401(k) Plan is subject to all the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Code Relating to Retirement Plans) of ERISA, except the funding requirements contained in Part 3 of Title I of ERISA, which by their terms do not apply to an individual account plan (other than a money purchase plan). The 401(k) Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding requirements contained in Title IV of ERISA are not applicable to participants or beneficiaries under the 401(k) Plan.

Reference to Full Text of 401(k) Plan. The following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. They are not complete and are qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan are available to all employees by filing a request with the 401(k) Plan Administrator c/o Magyar Bank, Attn: Michelle Foster, First Vice President, Human Resources, Somerset Street, New Brunswick, New Jersey, 08901, telephone number: (732) 342-7600 ext. 108. You are urged to read carefully the full text of the 401(k) Plan.

Eligibility and Participation

As an employee of the Bank, you are eligible to become a participant in the 401(k) Plan on the first day of the first month after you have both attained age 18 and completed three months of service (measured from your date of hire), provided that you are an eligible employee at such time. Commencing May 1, 2021, the following employees are not eligible (i) interns who are regularly scheduled to have less than 1,000 “hours of service” (as defined in the 401(k) Plan) during a 12-month period commencing on the employees date of hire (and thereafter, as measured on each annual anniversary of an employee’s date of hire) and (ii) employees represented by a collective bargaining agreement, if retirement benefits were the subject of good faith bargaining and if 2% or less of the employees covered by that agreement are professionals (as defined in Section 1.410(b)-9 of the Treasury regulations.

Once an eligible employee has satisfied the eligibility conditions, the employee will become a participant and will be eligible to make employee salary deferrals, including after-tax Roth 401(k) deferrals, and to receive employer matching contributions and/or profit-sharing contributions, if made. An eligible employee may also roll over contributions from another eligible plan.

An eligible employee will be entitled to share in any employer matching contribution, which, if made, will be based on a uniform percentage of your salary deferrals each year. An eligible employee will also be eligible to receive a profit-sharing contribution and/or a matching contribution if made by the Bank. Eligible employees will be entitled to share in any matching contribution and/or profit- sharing contribution made for a year, without regard to the amount of service completed during the plan year.

As of December 31, 2020, there were approximately 114 active and former employees with account balances in the 401(k) Plan.

 

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Contributions under the 401(k) Plan

Elective Deferrals. You are permitted to defer on a pre-tax basis no less than 1% and no more than 80% of your Compensation, subject to certain restrictions imposed by the Code, and to have that amount contributed to the 401(k) Plan on your behalf. Your pre-tax deferrals are subject to certain limitations imposed by the Code, and for 2021, your elective deferral limit is $19,500, however, if you become age 50 during the plan year, you may defer an additional amount as a “catch-up” contribution (“catch up contributions” are discussed further below). For 2021, the limit on catch-up contributions is $6,500. The limit on the regular elective deferral and “catch-up” contribution are subject to change on an annual basis. The Compensation of each participant taken into account under the 401(k) Plan is limited by the Code, and for 2021 the limit is $290,000 (this limit may change on an annual basis). Canceling or changing your contribution percentage can be accomplished either over the telephone or over the internet at any time.

The Plan includes an automatic salary deferral feature. When you are eligible to participate, the Bank will automatically defer 4% of your Compensation as a pre-tax deferral. You can complete a salary deferral agreement to elect an alternate deferral amount or to elect not to make elective deferrals to the 401(k) Plan. Your election will remain in place until you change it. If the Bank automatically deferred 4% of your Compensation, you can request a refund of the amount deferred and the Bank will refund your deferrals within 90 days of the first automatic deferral provided you notified the Bank within a reasonable period of time prior to the end of the 90 day period. Ordinary income taxes will be withheld on the amounts refunded to you.

Roth Elective Deferrals. You may elect to designate all or a portion of your deferrals as Roth elective deferrals. Roth elective deferrals do not reduce your total taxable income or your current taxes. Because you pay taxes on Roth elective deferrals when they are made, these contributions will not be taxed later when received as a benefit and distributed as a qualified distribution. A distribution will be a qualified distribution if (i) the distribution is made on or after you attain age 59 1/2, on or after the date of your death, or as a result of you becoming disabled as defined by the Code; or (ii) the distribution is made after the end of the 5-taxable-year period beginning with the first taxable year in which you make a Roth elective deferral contribution to this plan.

Catch-up Contributions. If you have made the maximum amount of elective deferrals allowed by the 401(k) Plan or other legal limits and you have attained at least age 50 (or will reach age 50 prior to the end of the tax year, which is December 31), you are also eligible to make an additional catch-up contribution. In 2021, the maximum catch-up contribution is $6,500. You may authorize your employer to withhold a specified dollar amount of your compensation for this purpose.

Matching Contributions. The Bank may make a discretionary matching contribution equal to a uniform percentage of your salary deferrals. Each year, the Bank will determine the matching percentage. Any salary deferrals that are “catch-up contributions” will not be matched. The Bank has the right to disregard (i.e., not “match”) Compensation that exceeds a certain dollar amount or certain percentage of your Compensation.

Profit Sharing Contributions. The Bank may, in its discretion, make profit sharing contributions to the accounts of eligible participants from time to time on a nondiscriminatory basis. The amount of any profit-sharing contributions, if made, will be determined in the sole discretion of the Bank. If a profit-sharing contribution is made, each participant will share in the profit-sharing contribution. A participant’s allocable share of any profit-sharing contribution will be determined by multiplying the contribution by a fraction, the numerator of which is the participant’s eligible 401(k) Plan compensation and the denominator of which is the total compensation of all eligible participants.

Qualified Nonelective Contributions. The Bank may make qualified nonelective contributions solely to non-highly compensated employees, if required to satisfy the non-discrimination tests relating to elective deferrals. Qualified Nonelective Contributions will be 100% vested when made.

Rollover Contributions. The 401(k) Plan may accept a rollover contribution from another tax-qualified plan or eligible individual retirement account made on behalf of an eligible employee. Any rollover contributions will be held in a rollover account for a participant. A participant will be 100% vested in his or her rollover contributions.

 

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In-Plan Roth Rollover Contributions. A participant who is eligible for a distribution from an account who is then an employee of the Bank may elect to roll over the distribution to a designated Roth contribution account in the Plan (referred to as an “In-Plan Roth Rollover Contribution”). Loans may not be rolled over to an In-Plan Roth Rollover Contribution.

Limitations on Contributions

Contribution Limits. For the tax year beginning January 1, 2021, the amount of your elective deferrals may not exceed $19,500 per calendar year, or $26,000 if you are eligible to make catch-up contributions. Contributions in excess of this limit are known as excess deferrals. If you defer amounts in excess of this limitation, your gross income for federal income tax purposes will include the excess in the year of the deferral. In addition, unless the excess deferral is distributed before April 15 of the following year, it will be taxed again in the year distributed. Income on the excess deferral distributed by April 15 of the immediately succeeding year will be treated, for federal income tax purposes, as earned and received by you in the tax year in which the contribution is made.

The total amount of contributions that you make and any contribution your employer makes on your behalf to your account in one year is limited to the lesser of 100% of your compensation or $58,000 (for 2021), or if applicable, $64,500 (for 2021) including catch-up contributions.

Rollovers. You may make a rollover contribution of an eligible rollover distribution from any other qualified retirement plan or an individual retirement arrangement (IRA). These funds will be maintained in a separate rollover account in which you will have a nonforfeitable vested interest.

Benefits under the 401(k) Plan

Vesting. At all times, you have a fully vested, nonforfeitable interest in your elective deferrals, including Roth elective deferrals, catch-up contributions, if any, and rollover contributions.

Your profit-sharing contributions, if any, and matching contributions, if any, will vest based on years of service with the Bank. To earn a year of service, you must be credited with at least 1,000 hours of service during a Plan Year. The 401(k) Plan has specific rules for crediting hours of service for vesting purposes. A participant will be credited with hours of service for each hour (a) for which the participant is directly or indirectly compensated by the Bank for the performance of duties; (b) for which the participant is directly or indirectly compensated by the Bank for reasons other than the performance of services (such as vacation, holidays, sickness, disability, lay-off, military duty, jury duty, or leaves of absence during the Plan Year); and (c) for back pay awarded or agreed to by the Bank. If you have questions regarding your vesting service, you should contact the plan administrator.

Profit sharing and matching contributions allocated to your account will vest, ratably, based on the following years of service:

 

Vesting Schedule  
Profit Sharing Contributions and Matching Contributions  
Period of Service    Vested
Percentage
 

Less than 1 year

     0

1 year

     20

2 years

     40

3 years

     60

4 years

     80

5 years or more

     100

You will always, however, be 100% vested in your profit-sharing contributions and matching contributions once you have attained your early or normal retirement age, or if you die or become disabled.

Distribution at Termination of Employment. You will be entitled to receive a distribution of the vested amounts in your account when your employment terminates for any reason. Your benefit will be equal to the vested balance of your account. The 401(k) Plan will make involuntary cash-out distributions of vested account balances in accordance with the 401(k) Plan. If you are not a 5% or more owner of your employer, your required benefit

 

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commencement date is the April 1st following the close of the year in which the later occurs: you attain age 72 (if born on or after July 1, 1949 or age 70 if born before July 1, 1949) or you terminate employment.

Distribution after Death of Participant. In the event of your death, the value of your entire account will be payable to your beneficiary in accordance with the 401(k) Plan.

Investment of Contributions and Account Balances

All amounts credited to your accounts under the 401(k) Plan are held in the 401(k) Plan trust (the “Trust”), which is administered by the trustee of the 401(k) Plan. In order to permit your investment in the offering, the 401(k) Plan was moved to Principal Financial Group as the third-party plan administrator. In connection with the 401(k) Plan’s move to Principal Financial Group, the fund line-up in the 401(k) Plan has changed. The 401(k) Plan now offers the following investment options for you to invest your 401(k) Plan account balance among:

 

Investment Fund

  

Asset Class/Investment Fund Type

  

Large U.S. Equity

Vanguard Value Index Admiral Fund

  

Large Value

Large Cap S&P 500 Index Separate Account-Z

  

Large Blend

Vanguard Growth Index Admiral Fund

  

Large Growth

  

Small/Mid Equity

Wells Fargo Special Mid-Cap Value R6 Fund

  

Mid Cap Value

Vanguard Mid Cap Index Admiral

  

Mid Cap Blend

BlackRock Mid-Cap Growth Equity K Fund

  

Mid-Cap Growth

Fidelity Advisor Small Cap Value Z Fund

  

Small Value

Vanguard Small Cap Index Admiral Fund

  

Small Blend

Lord Abbot Developing Growth R6 Fund

  

Small Growth

  

International Equity

American Funds New World R6 Fund

  

Diversified Emerging Markets

MFS International Diversification R6 Fund

  

Foreign Large Blend

Vanguard International Growth Admiral Fund

  

Foreign Large Growth

  

Balanced Asset Allocation

Janus Henderson Balanced N Fund

  

Allocation 50%-70% Equity

Vanguard Target Date Retirement Income Inv. Fund

  

Target Date Retirement

Vanguard Target Retirement 2015 Fund

  

Target Date 2015

Vanguard Target Retirement 2020 Fund

  

Target Date 2020

Vanguard Target Retirement 2025 Fund

  

Target Date 2025

Vanguard Target Retirement 2030 Fund

  

Target Date 2030

Vanguard Target Retirement 2035 Fund

  

Target Date 2035

Vanguard Target Retirement 2040 Fund

  

Target Date 2040

Vanguard Target Retirement 2045 Fund

  

Target Date 2045

Vanguard Target Retirement 2050 Fund

  

Target Date 2050

Vanguard Target Retirement 2055 Fund

  

Target Date 2055

Vanguard Target Retirement 2060 Fund

  

Target Date 2060

Vanguard Target Retirement 2065 Fund

  

Target Date 2065

  

World Allocation

Loomis Sayles Global Allocation N Fund

  

World Allocation

  

Fixed Income

PIMCO Income Institutional Fund

  

Multisector Bond

PGIM High Yield R6 Fund

  

High Yield Bond

iShares US Aggregate Bond Index K Fund

  

Intermediate Core Bond

DFA Inflation Protected Securities I Fund

  

Inflation Protected Bond

  

Short Term Fixed Income

Principal Guaranteed Option*

  

Guaranteed Income

  

Employer Stock

Magyar Bancorp Stock Fund

  

Employer Stock Fund

 

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*

This Option, which provides a guaranteed rate of return that changes periodically, is not listed in the table below. A description of the Principal Guaranteed Option follows the Performance History table under Description of the Investment Funds.

Performance History

The following table provides performance data with respect to the investment funds in the 401(k) Plan:

 

     Average Annual Total Return
(as of 12/31/2020 quarter end)
 

Investment Option Name

   1-Year     3-Year     5-Year     10-Year      Incept Date  

Vanguard Value Index Admiral Fund

     2.29       6.77       10.75       11.22        11/13/2000  

Large Cap S&P 500 Index Separate Account-Z

     18.36       14.13       15.15       13.81        01/01/1990  

Vanguard Growth Index Admiral Fund

     40.19       22.97       20.32       16.67        11/13/2000  

Wells Fargo Special Mid-Cap Value R6 Fund

     3.36       6.85       10.56       11.49        06/28/2013  

Vanguard Mid Cap Index Admiral

     18.24       12.04       13.28       12.40        11/12/2001  

BlackRock Mid-Cap Growth Equity K Fund

     46.23       27.04       23.32       17.79        03/28/2016  

Fidelity Advisor Small Cap Value Z Fund

     11.35       4.63       9.29       10.01        10/02/2018  

Vanguard Small Cap Index Admiral Fund

     19.11       11.22       13.60       12.01        11/13/2000  

Lord Abbot Developing Growth R6 Fund

     73.11       34.19       25.21       17.34        06/30/2015  

American Funds New World R6 Fund

     25.30       12.19       14.41       7.43        05/01/2009  

MFS International Diversification R6 Fund

     15.43       9.04       11.59       7.70        10/02/2017  

Vanguard International Growth Admiral Fund

     59.74       22.45       21.77       12.39        08/13/2001  

Janus Henderson Balanced N Fund

     14.48       12.27       11.95       10.23        05/31/2012  

Vanguard Target Date Retirement Income Inv. Fund

     10.02       6.86       6.86       5.88        10/27/2003  

Vanguard Target Retirement 2015 Fund

     10.32       7.11       7.78       7.04        10/27/2003  

Vanguard Target Retirement 2020 Fund

     12.04       8.07       9.02       7.93        06/27/2006  

Vanguard Target Retirement 2025 Fund

     13.30       8.73       9.88       8.54        10/27/2003  

Vanguard Target Retirement 2030 Fund

     14.10       9.16       10.51       9.04        06/07/2006  

Vanguard Target Retirement 2035 Fund

     14.79       9.50       11.11       9.51        10/27/2003  

Vanguard Target Retirement 2040 Fund

     15.47       9.85       11.71       9.90        06/07/2006  

Vanguard Target Retirement 2045 Fund

     16.30       10.20       12.09       10.09        10/27/2003  

Vanguard Target Retirement 2050 Fund

     16.39       10.24       12.10       10.09        06/07/2006  

Vanguard Target Retirement 2055 Fund

     16.32       10.22       12.09       10.10        08/18/2010  

Vanguard Target Retirement 2060 Fund

     16.32       10.22       12.08       —          01/19/2012  

Vanguard Target Retirement 2065 Fund

     16.17       10.15       —         —          07/12/2017  

Loomis Sayles Global Allocation N Fund

     15.42       11.67       12.22       9.58        02/01/2017  

PIMCO Income Institutional Fund

     5.80       4.76       6.30       7.36        03/30/2007  

PGIM High Yield R6 Fund

     5.72       6.70       8.63       6.92        10/31/2011  

iShares US Aggregate Bond Index K Fund

     7.64       5.35       4.39       3.70        07/02/1993  

DFA Inflation Protected Securities I Fund

     11.65       6.13       5.26       3.95        09/18/2006  

Magyar Bancorp. Stock Fund

     (21.63     (9.02     (0.75     9.19        01/23/2006  

Description of the Investment Funds

The following is a description of each of the funds:

Vanguard Value Index Admiral Fund

The investment seeks to track the performance of a benchmark index that measures the investment return of large-capitalization value stocks. The fund employs an indexing investment approach designed to track the performance of the CRSP US Large Cap Value Index, a broadly diversified index predominantly made up of value stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

 

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Large Cap S&P 500 Index Separate Account-Z

The investment option normally invests the majority of assets in common stocks of companies that compose the S&P 500 Index. Management attempts to mirror the investment performance of the index by allocating assets in approximately the same weightings as the S&P 500 Index. Over the long-term, management seeks a very close correlation between the performance of the Separate Account before expenses and that of the S&P 500 Index.

Vanguard Growth Index Admiral Fund

The investment seeks to track the performance of a benchmark index that measures the investment return of the CRSP US Large Cap Growth Index. The fund employs an indexing investment approach designed to track the performance of index, a broadly diversified index predominantly made up of growth stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. The fund is non-diversified.

Wells Fargo Special Mid-Cap Value R6 Fund

The investment seeks long-term capital appreciation. The fund normally invests at least 80% of its net assets in equity securities of medium-capitalization companies. It invests principally in equity securities of medium-capitalization companies, which the manager defines as securities of companies with market capitalizations within the range of the Russell Midcap(R) Index at the time of purchase.

Vanguard Mid Cap Index Admiral

The investment seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the CRSP US Mid Cap Index, a broadly diversified index of stocks of mid-size U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

BlackRock Mid-Cap Growth Equity K Fund

The investment seeks long-term capital appreciation. The fund normally invests at least 80% of its net assets in equity securities issued by U.S. mid-capitalization companies which the fund management believes have above-average earnings growth potential. The fund adviser generally defines these companies, at the time of the fund’s investment, as those with market capitalizations comparable in size to the companies in the Russell Midcap(R) Growth Index. It primarily invests in common stock but also can invest in preferred stock, convertible securities and other equity securities.

Fidelity Advisor Small Cap Value Z Fund

The investment seeks capital appreciation. The fund invests primarily in common stocks. It invests at least 80% of assets in securities of companies with small market capitalizations. The fund invests in securities of companies that Fidelity Management & Research Company (FMR) believes are undervalued in the marketplace in relation to factors such as assets, sales, earnings, growth potential, or cash flow, or in relation to securities of other companies in the same industry (stocks of these companies are often called “value” stocks). It invests in domestic and foreign issuers.

Vanguard Small Cap Index Admiral Fund

The investment seeks to track the performance of a benchmark index that measures the investment return of small-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the CRSP US Small Cap Index, a broadly diversified index of stocks of small U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

Lord Abbot Developing Growth R6 Fund

The investment seeks long-term growth of capital through a diversified and actively managed portfolio consisting of developing growth companies, many of which are traded over the counter. The fund invests in equity securities of companies that the portfolio management team believes demonstrate above-average, long-term growth

 

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potential. Under normal conditions, the fund invests at least 65% of its net assets in equity securities of small companies. It may invest up to 10% of its net assets in securities of foreign companies, including emerging market companies, American Depositary Receipts (“ADRs”), and other similar depositary receipts.

American Funds New World R6 Fund

The investment seeks long-term capital appreciation. The fund invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets. Under normal market conditions, the fund invests at least 35% of its assets in equity and debt securities of issuers primarily based in qualified countries that have developing economies and/or markets.

MFS International Diversification R6 Fund

The investment seeks capital appreciation. The fund is designed to provide diversification within the international asset class by investing the majority of its assets in other mutual funds advised by the adviser, referred to as underlying funds. The adviser seeks to diversify the fund’s investments in terms of market capitalization (by including large, mid, and/or small cap underlying funds), by style (by including both growth and value underlying funds), and by geography (by including developed and emerging market underlying funds).

Janus Henderson Balanced N Fund

The investment seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The fund pursues its investment objective by normally investing 35-65% of its assets in equity securities and the remaining assets in fixed-income securities and cash equivalents. It normally invests at least 25% of its assets in fixed-income senior securities. The fund’s fixed-income investments may reflect a broad range of credit qualities and may include corporate debt securities, U.S. government obligations, non-U.S. government securities, mortgage-backed securities and other mortgage-related products, and short-term securities.

Vanguard International Growth Admiral Fund

The investment seeks to provide long-term capital appreciation. The fund invests predominantly in the stocks of companies located outside the United States and is expected to diversify its assets in countries across developed and emerging markets. In selecting stocks, the fund’s advisors evaluate foreign markets around the world and choose large-, mid-, and small-capitalization companies considered to have above-average growth potential. The fund uses multiple investment advisors.

Vanguard Target Date Retirement Income Inv. Fund

The investment seeks to provide current income and some capital appreciation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors currently in retirement. Its indirect bond holdings are a diversified mix of short-, intermediate-, and long-term U.S. government, U.S. agency, and investment-grade U.S. corporate bonds; inflation-protected public obligations issued by the U.S. Treasury; mortgage-backed and asset-backed securities; and government, agency, corporate, and securitized investment-grade foreign bonds issued in currencies other than the U.S. dollar.

Vanguard Target Retirement 2015 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2015 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2020 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2020 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

 

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Vanguard Target Retirement 2025 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2025 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2030 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2030 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2035 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2035 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2040 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2040 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2045 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2045 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2050 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2050 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2055 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2055 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2060 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2060 (the target year). The fund’s

 

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asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Vanguard Target Retirement 2065 Fund

The investment seeks to provide capital appreciation and current income consistent with its current asset allocation. The fund invests in other Vanguard mutual funds according to an asset allocation strategy designed for investors planning to retire and leave the workforce in or within a few years of 2065 (the target year). The fund’s asset allocation will become more conservative over time, meaning that the percentage of assets allocated to stocks will decrease while the percentage of assets allocated to bonds and other fixed income investments will increase.

Loomis Sayles Global Allocation N Fund

The investment seeks high total investment return through a combination of capital appreciation and current income. Under normal market conditions, the fund will invest at least 80% of its net assets (plus any borrowings made for investment purposes) in equity and fixed-income securities of U.S. and foreign issuers. Equity securities purchased by the fund may include common stocks, preferred stocks, depositary receipts, warrants, securities convertible into common or preferred stocks, interests in real estate investment trusts (“REITs”) and/or real estate-related securities and other equity-like interests in an issuer.

PIMCO Income Institutional Fund

The investment seeks to maximize current income; long-term capital appreciation is a secondary objective. The fund invests at least 65% of its total assets in a multi-sector portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It may invest up to 50% of its total assets in high yield securities rated below investment grade by Moody’s, S&P or Fitch, or if unrated, as determined by PIMCO.

PGIM High Yield R6 Fund

The investment seeks to maximize current income; and capital appreciation is a secondary objective. The fund normally invests at least 80% of its investable assets in a diversified portfolio of high yield fixed-income instruments rated Ba or lower by Moody’s Investors Service (Moody’s) or BB or lower by S&P Global Ratings (Standard & Poor’s), and instruments either rated by another nationally recognized statistical rating organization (NRSRO), or considered to be of comparable quality, that is, junk bonds.

iShares US Aggregate Bond Index K Fund

The investment seeks to provide investment results that correspond to the total return performance of fixed-income securities in the aggregate, as represented by the Bloomberg Barclays U.S. Aggregate Bond Index. The fund is a “feeder” fund that invests all of its assets in the Master Portfolio of MIP, which has the same investment objective and strategies as the fund. Under normal circumstances, at least 90% of the value of the fund’s assets, plus the amount of any borrowing for investment purposes, is invested in securities comprising the Barclays U.S. Aggregate Index.

DFA Inflation Protected Securities I Fund

The investment seeks to provide inflation protection and earn current income consistent with inflation-protected securities. As a non-fundamental policy, under normal circumstances, the Portfolio will invest at least 80% of its net assets in inflation-protected securities. Inflation-protected securities (also known as inflation-indexed securities) are securities whose principal and/or interest payments are adjusted for inflation, unlike conventional debt securities that make fixed principal and interest payments.

Principal Guaranteed Option

This is a guaranteed general account backed group annuity contract, issued by Principal Life Insurance Company (Principal Life). A rate of interest contractually guaranteed by Principal Life for a specified period is credited to participant account balances. The guaranteed rate of interest is presently 1.60% per year. Participants

 

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can generally transfer assets into or out of the contract without early termination or surrender charges. Charges and participant transfer restrictions may result from certain employer actions. A surrender of the plan’s interest in the contract, elected by a plan fiduciary, will be paid out in six installments over five years (subject to additional contractual limitations), or as a single sum subject to an Early Termination Charge, whichever the plan fiduciary chooses.

Magyar Bancorp Stock Fund

This option seeks to provide long-term capital appreciation through investment solely in common stock of Magyar Bancorp. Employer stock may experience significant fluctuation in value, particularly in the short-term. The Magyar Bancorp Stock Fund is neither a mutual fund nor a diversified or managed investment option.

An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. As with any mutual fund or other investment, there is always a risk that you may lose money on your investment in any of the funds listed above.

Magyar Bancorp Stock Fund

In connection with the offering, you may, in the manner described earlier, elect to direct the trustee to invest your 401(k) Plan account (reduced by your existing investment in the Magyar Bancorp Stock Fund and any participant loans you have outstanding) in Magyar Bancorp common stock. After the offering, the shares you purchased in the offering, as well as shares of Magyar Bancorp that you held in the Magyar Bancorp Stock Fund that are converted to Magyar Bancorp common stock pursuant to the exchange ratio, will be held within the 401(k) Plan in the Magyar Bancorp Stock Fund. The Magyar Bancorp Stock Fund is neither a mutual fund nor a diversified or managed investment option. Rather it is merely a recordkeeping mechanism established by the 401(k) Plan custodian to track the shares purchased by participants through the 401(k) Plan.

The performance of Magyar Bancorp common stock held in the Magyar Bancorp Stock Fund prior to the offering is set forth on page S-12 under “Description of the 401(k) Plan – Performance History.” Performance of Magyar Bancorp common stock depends on a number of factors, including the financial condition and profitability of Magyar Bancorp and Magyar Bank and market conditions for shares of Magyar Bancorp common stock generally.

Investments in Magyar Bancorp Stock Fund involve special risks common to investments in the shares of common stock of Magyar Bancorp. In making a decision to invest all or a part of your account balance in the Magyar Bancorp Stock Fund, you should carefully consider the information set forth on page S-17 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities – The Importance of Diversifying Your Retirement Savings.”

For a discussion of material risks you should consider, see “Risk Factors” beginning on page XX of the attached prospectus and the section of this prospectus supplement called “Notice of Your Rights Concerning Employer Securities” below.

Withdrawals from the 401(k) Plan

Applicable federal law requires the 401(k) Plan to impose substantial restrictions on the right of a 401(k) Plan participant to withdraw amounts held for his or her benefit under the 401(k) Plan prior to the participant’s termination of employment with the Bank. A substantial federal tax penalty may also be imposed on withdrawals made prior to the participant’s attainment of age 59 1/2, regardless of whether such a withdrawal occurs during his or her employment with the Bank or after termination of employment.

Withdrawal from your Account prior to Retirement. Once you have attained age 59 1/2, you may request distribution of all or part of the amounts credited to your accounts attributable to elective deferrals, nonelective contributions and matching contributions.

 

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Hardship Withdrawals. If you incur a financial hardship, you may request a withdrawal from the portion of your account attributable to your pre-tax and after-tax elective deferrals.

Rollover Contributions. You may withdraw amounts you contributed to the 401(k) Plan as a rollover contribution at any time.

Loan. You may request a loan from your account pursuant to the procedures established in the 401(k) Plan.

Administration of the 401(k) Plan

The Trustee and Custodian. The trustee of the 401(k) Plan is Principal Trust Company, however, in connection with the offering, Magyar Bank, will appoint a “special trustee” consisting of certain officers of Magyar Bank, to manage the purchases in the offering and the Stock Purchase Fund. After the offering has concluded, the special trustee will resign and Principal Trust Company will be the sole trustee of the 401(k) Plan.

Plan Administrator. Pursuant to the terms of the 401(k) Plan, the 401(k) Plan is administered by the 401(k) Plan administrator. The address of the 401(k) Plan administrator is Magyar Bank, 400 Somerset Street, New Brunswick, New Jersey 08901. The 401(k) Plan administrator is responsible for the administration of the 401(k) Plan, interpretation of the provisions of the 401(k) Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the 401(k) Plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the 401(k) Plan, preparation and filing of all returns and reports relating to the 401(k) Plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under Sections 104 and 105 of ERISA.

Reports to Plan Participants. The 401(k) Plan administrator will furnish a statement to you at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses (if any). In addition, you can go on-line to principal.com or call 1-800-547-7754 at any time to review your account balances.

Amendment and Termination

It is the intention of the Bank to continue the 401(k) Plan indefinitely. Nevertheless, the Bank may terminate the 401(k) Plan at any time. If the 401(k) Plan is terminated in whole or in part, then regardless of other provisions in the 401(k) Plan, you will have a fully vested interest in your accounts. The Bank reserves the right to make any amendment or amendments to the 401(k) Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that the Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

Merger, Consolidation or Transfer

In the event of the merger or consolidation of the 401(k) Plan with another plan, or the transfer of the trust assets to another plan, the 401(k) Plan requires that you receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer.

Federal Income Tax Consequences

The following is a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the 401(k) Plan.

 

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As a “tax-qualified retirement plan,” the Code affords the 401(k) Plan special tax treatment, including:

(1)     the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the 401(k) Plan each year;

(2)     participants pay no current income tax on elective deferrals, other than Roth deferrals, contributed by the employer on their behalf (Roth deferrals are taxed in the year deferred);

(3)     earnings of the 401(k) Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments; and

(4).     Amounts distributed from the 401(k) Plan are generally taxed at ordinary income tax rates at the time of distribution.

Roth deferrals and earnings on Roth deferrals that are distributed in a qualifying distribution receive special tax treatment (see the discussion on Roth deferrals under the section on “Description of the 401(k) Plan – Contributions Under the 401(k) Plan”) In addition, special tax treatment is afforded to shares of common stock of Magyar Bancorp distributed in a lump sum distribution after termination of employment. (See the discussion below under “Federal Income Tax Consequences – Magyar Bancorp Common Stock Included in Lump-Sum Distribution.”)

The Bank will administer the 401(k) Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.

Lump-Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant will qualify as a lump-sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 1/2, and consists of the balance credited to participants under the 401(k) Plan and all other profit sharing plans (and in some cases all other stock bonus plans), if any, maintained by the Bank. The portion of any lump-sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump-sum distribution, less the amount of after-tax contributions, if any, you have made to this 401(k) Plan and any other profit-sharing plans maintained by the Bank, which is included in the distribution.

Magyar Bancorp Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes Magyar Bancorp common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized appreciation with respect to Magyar Bancorp common stock, that is, the excess of the value of Magyar Bancorp common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Magyar Bancorp common stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Magyar Bancorp common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Magyar Bancorp common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain, regardless of the holding period of Magyar Bancorp common stock. Any gain on a subsequent sale or other taxable disposition of Magyar Bancorp common stock, in excess of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by regulations to be issued by the Internal Revenue Service.

Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the 401(k) Plan to another qualified plan or to an individual retirement account (IRA) in accordance with the terms of the other plan or account.

Notice of Your Rights Concerning Employer Securities

Because you may in the future have investments in Magyar Bancorp Stock Fund under the 401(k) Plan, you should take the time to read the following information carefully.

Your Rights Concerning Employer Securities. The 401(k) Plan must allow you to elect to move any portion of your account that is invested in the Magyar Bancorp Stock Fund from that investment into other investment alternatives under the 401(k) Plan. You may contact the 401(k) Plan Administrator shown above for specific information regarding this right, including how to make this election. In deciding whether to exercise this right, you

 

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will want to give careful consideration to the information below that describes the importance of diversification. All of the investment options under the 401(k) Plan are available to you if you decide to diversify out of the Magyar Bancorp Stock Fund.

The Importance of Diversifying Your Retirement Savings. To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the 401(k) Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerance for risk. Therefore, you should carefully consider the rights described here and how these rights affect the amount of money that you invest in Magyar Bancorp common stock through the 401(k) Plan.

It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the 401(k) Plan to help ensure that your retirement savings will meet your retirement goals.

Additional ERISA Considerations

The 401(k) Plan is subject to certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan’s assets by participants and beneficiaries. The 401(k) Plan’s feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The effect of this is two-fold. First, you will not be deemed a “fiduciary” because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as the Bank, the 401(k) Plan Administrator, or the 401(k) Plan’s trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your 401(k) Plan account.

Because you are entitled to invest your account balance in the 401(k) Plan in Magyar Bancorp common stock, the regulations under Section 404(c) of ERISA require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to the common stock be conducted in a way that ensures the confidentiality of your exercise of these rights.

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on (i) officers, (ii) directors, and (iii) persons beneficially owning more than 10% of public companies such as Magyar Bancorp Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports of beneficial ownership. Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares of Magyar Bancorp the individual must fill out a Form 3 reporting initial beneficial ownership and file it with the Securities and Exchange Commission. Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4 within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of Magyar Bancorp’s fiscal year. Discretionary transactions in and beneficial ownership of the common stock through the Magyar Bancorp Stock Fund of the 401(k) Plan by officers, directors and persons beneficially owning more than 10% of the common stock of Magyar Bancorp generally must be reported to the Securities and Exchange Commission by such individuals.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Magyar Bancorp of profits realized by an officer, director or any

 

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person beneficially owning more than 10% of Magyar Bancorp’s common stock resulting from non-exempt purchases and sales of Magyar Bancorp common stock within any six-month period.

The Securities and Exchange Commission has adopted rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities within an employee benefit plan, provided certain requirements are met. These requirements generally involve restrictions upon the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.

Except for distributions of common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons affected by Section 16(b) are required to hold shares of common stock distributed from the 401(k) Plan for six months following such distribution and are prohibited from directing additional purchases within the Magyar Bancorp Stock Fund for six months after receiving such a distribution.

Financial Information Regarding 401(k) Plan Assets

Financial information representing the assets available for plan benefits at December 31, 2020, is available upon written request to the 401(k) Plan Administrator at the address shown above.

LEGAL OPINION

The validity of the issuance of the common stock has been passed upon by Luse Gorman, PC, Washington, D.C., which firm acted as special counsel to Magyar Bancorp in connection with Magyar Bancorp’s stock offering.

 

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PROSPECTUS

 

(Holding Company for Magyar Bank)

Up to 3,910,000 Shares of Common Stock

 

 

Magyar Bancorp, Inc., a Delaware corporation, that we refer to as “Magyar Bancorp” throughout this prospectus, is offering up to 3,910,000 shares of common stock for sale at $10.00 per share in connection with the conversion of Magyar Bancorp, MHC from the mutual holding company to the stock holding company form of organization.

The shares we are offering represent the ownership interest in Magyar Bancorp currently owned by Magyar Bancorp, MHC. Magyar Bancorp owns all of the outstanding shares of common stock of Magyar Bank, a New Jersey stock savings bank. Magyar Bancorp’s common stock is currently listed on the Nasdaq Global Market under the symbol “MGYR” and, upon consummation of this offering, will continue to be listed and trade on the Nasdaq Global Market under the symbol “MGYR.”

The shares of common stock are first being offered for sale in a subscription offering to eligible depositors of Magyar Bank and to tax-qualified employee benefit plans of Magyar Bank. Eligible depositors and tax-qualified employee benefit plans of Magyar Bank have priority rights to buy all of the shares offered. Any shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to residents of the communities served by Magyar Bank and then to existing stockholders of Magyar Bancorp. Any shares of common stock not purchased in the subscription or community offerings may be offered for sale to the public through a syndicate of broker-dealers, referred to in this prospectus as the syndicated community offering. The syndicated community offering may commence before the subscription and community offerings (including any extensions) have expired. We must sell a minimum of 2,890,000 shares to complete the offering.

In addition to the shares we are selling in the offering, the shares of common stock of Magyar Bancorp currently owned by public stockholders will be converted into new shares of common stock of Magyar Bancorp based on an exchange ratio that will result in existing public stockholders owning approximately the same percentage of common stock of Magyar Bancorp as they owned of the common stock of Magyar Bancorp immediately before the completion of the conversion. The number of shares we expect to issue in the exchange ranges from 2,356,399 shares to 3,188,070 shares.

The minimum purchase order is 25 shares. Generally, no individual or individuals acting through a single qualifying account may purchase more than 40,000 shares ($400,000) of common stock, and no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than 50,000 shares ($500,000) of common stock in all categories of the offering combined.

The subscription offering expires at 2:00 p.m., Eastern Time, on June 18, 2021. We expect that the community offering, if held, will expire at the same time. We may extend this expiration date without notice to you until August 2, 2021. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond August 2, 2021, or the number of shares of common stock to be sold is increased to more than 3,910,000 shares or decreased to less than 2,890,000 shares. If the offering is extended past August 2, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 3,910,000 shares or decreased to less than 2,890,000 shares, all funds received for the purchase of shares of common stock will be returned promptly with interest. All subscribers will be resolicited and given an opportunity to place a new stock order within a specified period of time.

Keefe, Bruyette & Woods, Inc. will assist us in selling the shares on a best efforts basis in the subscription offering and, if held, the community offering, and will serve as sole manager for any syndicated community offering. Keefe, Bruyette & Woods, Inc. is not required to purchase any shares of common stock that are sold in the subscription offering or, if held, the community offering.

OFFERING SUMMARY

Price: $10.00 per Share

 

     Minimum      Midpoint      Maximum  

Number of shares

     2,890,000        3,400,000        3,910,000  

Gross offering proceeds

   $ 28,900,000      $ 34,000,000      $ 39,100,000  

Estimated offering expenses, excluding selling agent fees and expenses (1)(2)

   $ 1,055,000      $ 1,055,000      $ 1,055,000  

Selling agent fees and expenses (1)

   $ 445,000      $ 445,000      $ 479,720  

Estimated net proceeds

   $ 27,400,000      $ 32,500,000      $ 37,565,280  

Estimated net proceeds per share

   $ 9.48      $ 9.56      $ 9.61  

 

(1)

See “The Conversion and Offering – Plan of Distribution; Selling Agent and Underwriter Compensation” for a discussion of Keefe, Bruyette & Woods, Inc.’s compensation for this offering and the compensation to be received by Keefe, Bruyette & Woods, Inc. and the other broker-dealers that may participate in the syndicated community offering.

(2)

Excludes records agent fees and expenses payable to Keefe, Bruyette & Woods, Inc., which are included in estimated offering expenses. See “The Conversion and Offering – Records Management.”

This investment involves a degree of risk, including the possible loss of principal.

See “Risk Factors” beginning on page 17.

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the New Jersey Department of Banking and Insurance, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

For assistance, contact the Stock Information Center at (877) 643-8198.

The date of this prospectus is May 14, 2021.


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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1  

RISK FACTORS

     17  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     32  

RECENT DEVELOPMENTS

     34  

FORWARD-LOOKING STATEMENTS

     43  

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

     46  

OUR DIVIDEND POLICY

     47  

MARKET FOR THE COMMON STOCK

     48  

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

     49  

CAPITALIZATION

     50  

PRO FORMA DATA

     51  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     56  

BUSINESS OF MAGYAR BANCORP

     74  

BUSINESS OF MAGYAR BANK

     75  

SUPERVISION AND REGULATION

     96  

TAXATION

     105  

MANAGEMENT

     107  

BENEFICIAL OWNERSHIP OF COMMON STOCK

     116  

SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS

     117  

THE CONVERSION AND OFFERING

     117  

COMPARISON OF STOCKHOLDERS’ RIGHTS FOR STOCKHOLDERS OF MAGYAR BANCORP BEFORE AND AFTER THE CONVERSION

     138  

RESTRICTIONS ON ACQUISITION OF MAGYAR BANCORP

     139  

DESCRIPTION OF CAPITAL STOCK OF MAGYAR BANCORP UPON COMPLETION OF THE CONVERSION

     142  

TRANSFER AGENT

     144  

EXPERTS

     144  

LEGAL MATTERS

     144  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     144  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MAGYAR BANCORP, INC. AND SUBSIDIARY

     145  

 

 

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SUMMARY

The following summary explains the significant aspects of the conversion of Magyar Bancorp, MHC to the stock holding company form or organization, which we refer to as the “conversion” throughout this prospectus, the offering of new shares of Magyar Bancorp in the subscription offering and any community offering or syndicated community offering, which we collectively refer to as the “offering” throughout this prospectus, and the exchange of existing shares of Magyar Bancorp common stock for new shares of Magyar Bancorp in connection with the conversion and offering. This summary may not contain all of the information that is important to you. Before making an investment decision, you should read this entire document carefully, including the consolidated financial statements and the related notes, and the section entitled “Risk Factors.”

Magyar Bancorp and Magyar Bancorp, MHC

Magyar Bancorp is a Delaware corporation that owns all of the outstanding shares of common stock of Magyar Bank. At December 31, 2020, Magyar Bancorp had consolidated assets of $741.8 million, deposits of $612.1 million and stockholders’ equity of $58.2 million and had 5,810,746 shares of common stock outstanding, of which 2,610,296 shares, or 44.9%, were owned by the public, including 72,242 shares held by Magyar Bank Charitable Foundation.

The remaining 3,200,450 shares of common stock of Magyar Bancorp are held by Magyar Bancorp, MHC, a New Jersey-chartered mutual holding company. The shares of common stock we are offering represent Magyar Bancorp, MHC’s ownership interest in Magyar Bancorp. Upon completion of the conversion and offering, Magyar Bancorp, MHC’s shares will be cancelled and Magyar Bancorp, MHC will no longer exist.

Magyar Bancorp’s corporate headquarters is located at 400 Somerset Street, New Brunswick, New Jersey and its telephone number at that address (732) 342-7600.

Magyar Bank

Magyar Bank is a New Jersey-chartered savings bank headquartered in New Brunswick, New Jersey that was originally founded in 1922 as a New Jersey building and loan association. In 1954, Magyar Bank converted to a New Jersey savings and loan association, before converting to a New Jersey savings bank charter in 1993 and reorganizing as a stock savings bank in the mutual holding company structure in 2006. We conduct business from our corporate headquarters located at 400 Somerset Street, New Brunswick, New Jersey, and our seven branch offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey.

Magyar Bank’s corporate headquarters is located at 400 Somerset Street, New Brunswick, New Jersey, our telephone number at that address is (732) 342-7600, and our website is located at www.magbank.com. Information on this website is not and should not be considered to be a part of this prospectus.

Our Organizational Structure and the Proposed Conversion

We have operated in a two-tier mutual holding company structure since 2006, when Magyar Bank reorganized from a New Jersey-chartered mutual savings bank into the two-tiered mutual holding company structure and became the wholly owned stock savings bank subsidiary of Magyar Bancorp. At that time, Magyar Bancorp completed an initial public offering by selling 2,618,820 shares, or 44.2% of its outstanding common stock, to depositors of Magyar Bank and the public (including the Magyar Bank Employee Stock Ownership Plan) and contributed 104,472 shares of common stock and $500,000 in cash to the Magyar Bank Charitable Foundation.

Pursuant to the terms of the plan of conversion and reorganization, which we refer to as the “plan of conversion,” we are converting from a two-tier mutual holding company corporate structure to the fully public stock holding company corporate structure. Upon completion of the conversion, Magyar Bancorp, MHC will cease to exist and Magyar Bancorp will continue to own 100% of Magyar Bank. The conversion will be accomplished by the merger of Magyar Bancorp, MHC with and into Magyar Bancorp. The shares of Magyar Bancorp common stock being offered for sale represent the majority ownership interest in Magyar Bancorp currently held by Magyar Bancorp, MHC. Public stockholders of Magyar Bancorp will receive new shares of common stock of Magyar Bancorp in exchange for their shares of Magyar Bancorp at an exchange ratio intended to preserve approximately the same aggregate ownership interest in Magyar Bancorp, adjusted downward to reflect certain assets held by



 

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Magyar Bancorp, MHC, without giving effect to new shares purchased in the offering or cash paid in lieu of any fractional shares. The shares of Magyar Bancorp common stock owned by Magyar Bancorp, MHC will be canceled.

The following diagram shows our current organizational structure, reflecting ownership percentages at December 31, 2020:    

 

After the conversion and offering are completed, we will be organized as a fully public stock holding company, as follows:

 

 

Our Business

Our principal business, which is conducted primarily through Magyar Bank, consists of attracting retail deposits from the general public in the areas surrounding our corporate headquarters in New Brunswick, New Jersey and our branch offices located in Middlesex and Somerset counties, New Jersey, and investing those deposits, together with funds generated from operations and wholesale funding, in residential mortgage loans, home equity loans, home equity lines of credit, commercial real estate loans, commercial business loans, Small Business Administration (“SBA”) loans, construction loans and investment securities. We also originate consumer loans, which consist primarily of secured demand loans. We originate loans primarily for retention in our loan portfolio. However, from time to time we have sold some of our long-term, fixed-rate residential mortgage loans into the secondary market, while retaining the servicing rights for such loans. In addition, we sell the SBA-guaranteed portion of SBA loans while retaining the servicing rights for such loans. Our revenues are derived principally from interest on loans and securities. Our investment securities consist primarily of mortgage-backed securities and U.S. Government and government-sponsored enterprise obligations. We also generate revenues from fees and service charges. Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities. Magyar Bank is subject to comprehensive regulation and examination by the New Jersey Department of Banking and Insurance (the “NJDOBI”) and the Federal Deposit Insurance Corporation (“FDIC”) and is a member



 

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of the Federal Home Loan Bank system. Magyar Bancorp is subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

Business Strategy

Our current business strategy consists of the following:

 

   

Continue to grow our loan portfolio prudently and further diversify our loan portfolio. Our loan portfolio has increased to $607.0 million at December 31, 2020 compared to $611.3 million at September 30, 2020, $523.0 million at September 30, 2019 and $512.5 million at September 30, 2018. In recent years, consistent with our business strategy, our biggest areas of loan growth have been in commercial real estate, which increased $41.0 million, or 18.7%, from September 30, 2018 to December 31, 2020, and in commercial business loans, which increased $37.9 million, or 71.1%, from September 30, 2018 to December 31, 2020. Included in the December 31, 2020 balance of commercial business loans was $46.0 million of loans originated through the SBA’s Paycheck Protection Program (“PPP”). We intend to continue to grow our loan portfolio, with a focus primarily on commercial real estate and to a lesser extent commercial business lending. Although we will continue to emphasize the origination of one- to four-family residential mortgage loans, we expect our continued emphasis on commercial real estate and commercial business lending will result in the continued diversification of our loan portfolio with a lower concentration in one- to four-family residential real estate loans.

 

   

Continue to support our customers and our local community. During the COVID-19 pandemic, as we have done during prior economic downturns, we are taking actions to support our customers and our local communities. For example, during the year ended September 30, 2020, we originated $56.0 million of small business loans under the PPP, created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law in March 2020. As a result of our participation in the PPP, in addition to the loans originated, at December 31, 2020, we had 114 new business customers through the PPP with an aggregate balance of $14.0 million in core deposits and we believe we will retain a significant number of these customers. Furthermore, in response to the COVID-19 pandemic, we have implemented protocols and processes to help protect our employees, customers and communities, including leveraging our business continuity plans and capabilities that include critical operations teams being divided and dispersed to separate locations and, when possible, having employees work from home, while remaining open in all branch locations. In addition, we participated in the Federal Home Loan Bank of New York’s Covid-19 Small Business Recovery Grant Program and distributed $100,000 to local business and non-profits in our community. Our commitment to the communities we serve has resulted in Magyar Bank receiving a rating of “Outstanding” from the FDIC for our compliance with the Community Reinvestment Act on five consecutive examinations by the FDIC. An “Outstanding” rating is considered a benchmark for a bank’s level of care and concern for the communities it serves. Additionally, each year we support over 100 organizations through corporate donations and employees volunteering their time. Prior to the COVID-19 pandemic, our employees frequently attended events around the community, from serving meals at local soup kitchens, to providing financial education seminars and preparing first-time homebuyers in achieving homeownership. We still engage in these types of activities in a virtual format, and once the restrictions are lifted, we expect to continue to be an active civic leader in our communities through these types of engagements.

 

   

Focus on Technological Innovation. In recent years, we have increased our focus on utilizing technology to provide our customers with the most convenient and secure delivery platforms as well as improving our efficiency. We believe that recent technological improvements to our online banking and mobile application services were a critical element in allowing our customers to migrate to these delivery channels during the COVID-19 pandemic, and enabling them to safely conduct most of their banking transactions remotely. Our mobile applications allow customers to make deposits with their phones, as well as providing remote capture deposit functions for our business customers. Additionally, the addition of the Zelle online person-to-person payment



 

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feature has facilitated our customers’ ability to pay their friends and family members through a secure virtual platform. We intend to continue to utilize technology to improve our customers’ banking experience and improve our efficiency. Looking ahead, technological improvements we are researching include cash recyclers for branches to reduce the time it takes to complete transactions in the branch, an online deposit application that would allow customers to open accounts remotely, and a mobile application for business accounts. We believe that our current and prospective technological enhancements will not only improve our customers’ banking experience but also will improve our efficiency and thereby ultimately reduce operating expenses.

 

   

Continue to grow our core deposits. We consider our core deposits to include demand accounts, savings accounts, negotiable orders of withdrawal (NOW) and money market accounts. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits also help us maintain loan-to-deposit ratios at levels consistent with regulatory expectations. Such deposits totaled $493.3 million, or 80.6% of total deposits, as of December 31, 2020, compared to $399.8 million, or 75.4% of total deposits, as of September 30, 2018. Core deposits have also increased as we have held the proceeds of PPP loans originated to customers and deposited with Magyar Bank, including $14.0 million of deposits from 114 new customers of Magyar Bank at December 31, 2020 as a result of the PPP. While we expect some of these deposits to decrease as businesses utilize the PPP loan proceeds, we will focus on retaining as many of these new customer relationships as possible. We intend to continue to emphasize the aggregation of core deposits by incentivizing lenders to increase loan customer deposits and continuing to provide innovative products to our customers.

 

   

Continue to manage credit risk to maintain a low level of non-performing assets. We believe strong asset quality remains a key to our long-term financial success and is important in supporting our intended loan growth. Managing credit risk also reduces the provisions we require to maintain our allowance for loan losses, which enables us to use additional funds to support sales and marketing initiatives as well as invest in information technology systems customarily associated with a larger financial institution. Our total non-performing assets to total assets ratio was 1.63% at December 31, 2020, 1.63% at September 30, 2020 and 2.29% at September 30, 2019. Our strategy for credit risk management continues to focus on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. This includes enhanced loan monitoring of higher risk portfolio segments, higher risk individual loans and larger relationships within the portfolio, and more frequent loan grade review. We will also continue more frequent communication with large borrowers and borrowers within pandemic-affected segments, such as the hospitality and restaurant industries, and we will further continue obtaining interim financial statements, when available, and monitoring past due loans, as well as loans that were deferred as a result of COVID-19 hardships and that are required to resume normal monthly payments. Furthermore, given the uncertainty surrounding the length and severity of the COVID-19 pandemic, management has established and will continue to use enhanced underwriting criteria for all loan types, with a particular focus on portfolio segments identified as having elevated risk.

Impact of COVID-19 Outbreak

During the first quarter of 2020, global financial markets experienced significant volatility resulting from the spread of a novel coronavirus known as COVID-19. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has restricted the level of economic activity in our markets. In response to the pandemic, the governments of the State of New Jersey and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These measures dramatically increased unemployment in the United States and have negatively impacted many businesses, and thereby threatened the repayment ability of some of our borrowers.



 

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To address the economic impact in the United States, the CARES Act was signed into law on March 27, 2020. The CARES Act included a number of provisions that affected us, including accounting relief for troubled debt restructurings (“TDRs”), or loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates. The CARES Act also established the PPP, which allowed us to lend money to small businesses to maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meets certain other requirements.

In addition, the Federal Reserve Board took steps to bolster the economy by, among other things, reducing the federal funds rate and the discount-window borrowing rate to near zero. In response to the COVID-19 pandemic and to protect our employees and customers from potential exposure to the virus, all Magyar Bank lobbies continue to observe best practice protocols to limit exposure and/or spread of the virus.

We have implemented various consumer and commercial loan modification programs to provide our borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under accounting principles generally accepted in the United States (“U.S. GAAP”). In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date are not TDRs.

To assist our loan customers, we have offered loan payment deferrals to borrowers unable to make their contractual payments due to COVID-19. Deferral requests are considered on a case-by-case basis and are initially approved for a three-month period for principal and interest payments or for interest-only payments depending on the borrower’s circumstances. An additional three-month period is available for businesses that remain unable to operate and for consumers unable to make their mortgage or home equity payments due to COVID-19. Additional deferrals will be considered for businesses experiencing a prolonged impact from the COVID-19 pandemic, such as the accommodation and food service industries. At December 31, 2020, Magyar Bank had 33 loans totaling $23.2 million to businesses in the accommodations and food services industries. Magyar Bank’s loan portfolio does not have a significant exposure to the travel or entertainment industry.

Through December 31, 2020, we had modified 284 loans aggregating $150.9 million for the deferral of principal and/or interest payments. Of these loans, at December 31, 2020, 258 loans aggregating $134.9 million had resumed making their contractual loan payments, 15 loans totaling $7.2 million had paid off (including their deferred payments), nine loans totaling $7.3 million were currently deferred, and two loans totaling $1.5 million were past their deferral period and delinquent. Of the two delinquent loans, one commercial business loan totaling $1.4 million was delinquent more than 90 days at December 31, 2020 and one residential loan totaling $113,000 was delinquent 30 days at December 31, 2020. Details with respect to loan modifications as of December 31, 2020 are as follows:

 

Loan Type

   Number of
Loans
     Balance      Weighted Average
Interest Rate
 
     (Dollars in thousands)  

One- to four-family residential real estate (1)

     89      $ 23,184        4.06

Commercial real estate

     139        109,953        4.72

Construction

     4        2,630        3.77

Home equity lines of credit

     8        1,238        4.24

Commercial business

     29        6,738        4.06
  

 

 

    

 

 

    

 

 

 

Total

     269      $ 143,743        4.56
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes home equity loans.

Magyar Bank participated in the PPP, pursuant to which we have made loans, 100% guaranteed by the SBA, that are forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0% and loan payments are deferred for the first 10 months following the covered period, which is eight to 24 weeks following the date the loan is made. We originated 350 “First Draw” loans totaling $56.0 million through December 31, 2020 for which we received $2.0 million in origination fees from the SBA. These fees are being amortized over the expected life of the loans,



 

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which is two years for loans originated prior to June 5, 2020 and five years for loans originated June 5, 2020 or later. Through December 31, 2020, 48 loans totaling $10.0 million had been forgiven by the SBA.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues (“Economic Aid”) Act was signed into law. The Economic Aid Act allocated an additional $284.5 billion in funds for the PPP, expanded the eligible expenditures for which a business could use PPP proceeds, and provided for a simplified forgiveness application for PPP loans of $150,000 or less. The Economic Aid Act also provided the SBA with the authority to guarantee Second Draw PPP loans, under generally the same terms and conditions available under the First Draw program, through March 31, 2021. In order to qualify for a Second Draw PPP loan, an applicant must have experienced a revenue reduction of at least 25% in 2020 relative to 2019. We are participating in this second round of PPP and expect to provide Second Draw PPP loans to our eligible customers.

The Federal Reserve Board created the Paycheck Protection Program Lending Facility (“PPPLF”) to facilitate lending by eligible financial institutions to small businesses under the PPP. Under the PPPLF, the Federal Reserve Bank of New York provided advances with a fixed interest rate of 0.35% to Magyar Bank on a non-recourse basis, taking PPP loans as collateral. In addition, the FDIC allows Magyar Bank to neutralize the effect of PPP loans financed under the PPPLF on Tier 1 leverage capital ratios. We funded PPP loans with $36.9 million in PPPLF, $29.8 million of which was outstanding at December 31, 2020.

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

Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, which could include, but not be limited to: decreased demand for our products and services, protracted periods of lower interest rates, increased non-interest expenses, including operational losses, and increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses and net charge-offs.

For additional information, see “Risk Factors – Risks Related to the COVID-19 Pandemic – The COVID-19 pandemic has and will continue to pose risks and could harm our business, results of operations and prospects.”

Reasons for the Conversion and Offering

Our primary reasons for converting to the fully public stock form of ownership and undertaking the offering are to:

 

   

Enhance our regulatory capital position to support growth and build stockholder value. A strong capital position is essential to achieving our long-term objectives of growing Magyar Bank and building stockholder value. Although Magyar Bank currently exceeds all regulatory capital requirements, the proceeds from the offering will materially strengthen our capital position and enable us to support our planned growth and expansion through larger legal lending limits and reduced loan concentrations as a percentage of regulatory capital. The augmented regulatory capital will be essential to the continued implementation of our business strategy.

 

   

Transition our organization to a stock holding company structure, which gives us greater flexibility to access the capital markets compared to our existing mutual holding company structure. The stock holding company structure gives us greater flexibility to access the capital



 

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markets to support our growth through possible future equity and debt offerings. We have no current plans, agreements or understandings regarding any additional equity or debt offerings.

 

   

Improve the liquidity of our shares of common stock. We expect that the larger number of publicly traded shares that will be outstanding after completion of the conversion and offering will result in a more liquid and active market for our common stock. A more liquid and active market will make it easier for our stockholders to buy and sell our common stock and will give us greater flexibility in implementing capital management strategies.

 

   

Facilitate our stock holding company’s ability to pay dividends to our public stockholders. Current regulations of the Federal Reserve Board substantially restrict the ability of Magyar Bancorp, MHC to waive dividends declared by Magyar Bancorp. Accordingly, because any dividends declared and paid by Magyar Bancorp would have to be paid to Magyar Bancorp, MHC along with all other stockholders, the amount of dividends available for all other stockholders would be less than if Magyar Bancorp, MHC were to waive the receipt of dividends. The conversion will eliminate our mutual holding company structure and will facilitate our ability to pay dividends to all stockholders of Magyar Bancorp, subject to legal, regulatory and financial considerations applicable to all financial institutions. See “Our Dividend Policy.”

 

   

Facilitate future mergers and acquisitions. Although we do not currently have any understandings or agreements regarding any specific acquisition transaction, the stock holding company structure will give us greater flexibility to structure, and make us a more attractive and competitive bidder for, mergers and acquisitions of other financial institutions or business lines as opportunities arise. The additional capital raised in the offering also will enable us to consider larger merger transactions. In addition, although we intend to remain an independent financial institution, the stock holding company structure may make us a more attractive acquisition candidate for other institutions. Applicable regulations prohibit anyone from acquiring or offering to acquire more than 10% of our stock for three years following completion of the conversion without regulatory approval.

Terms of the Offering

We are offering for sale between 2,890,000 and 3,910,000 shares of common stock to eligible depositors of Magyar Bank and to our tax-qualified employee benefit plans and, to the extent shares remain available, we may offer shares in a community offering to the general public, with a preference given first to natural persons (including trusts of natural persons) residing in the New Jersey counties of Middlesex, Somerset, Monmouth, Hunterdon and Union. If necessary, we will also offer for sale shares to the general public in a syndicated community offering. Unless the number of shares of common stock to be offered is increased to more than 3,910,000 shares or decreased to fewer than 2,890,000 shares, or the subscription and community offerings are extended beyond August 2, 2021, subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past August 2, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. All subscribers will be notified by mail sent to the address the subscriber provides on the stock order form they have submitted. If you do not respond to the notice of extension, your order will be cancelled, and we will promptly return your funds with interest at 0.05% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 3,910,000 shares or decreased to less than 2,890,000 shares, all subscribers’ stock orders will be canceled, their withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at 0.05% per annum. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated community offering, if utilized.

The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, a community offering or a syndicated community offering. Investors will not be charged a commission to purchase shares of common stock in the offering. Keefe, Bruyette & Woods, Inc., which we refer to as “KBW,” our



 

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marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock in the offering but is not obligated to purchase any shares of common stock in the offering.

How We Determined the Offering Range, the Exchange Ratio and the $10.00 Per Share Purchase Price

The amount of common stock we are offering for sale and the exchange ratio for the exchange of shares of Magyar Bancorp for new shares of Magyar Bancorp are based on an independent appraisal of the estimated market value of Magyar Bancorp, assuming the offering has been completed. RP Financial, LC., our independent appraiser, has estimated that, as of February 5, 2021, this market value was $61.7 million. Based on federal regulations, this market value forms the midpoint of a valuation range with a minimum of $52.5 million and a maximum of $71.0 million. Based on this valuation range, the 55.1% ownership interest of Magyar Bancorp, MHC in Magyar Bancorp as of December 31, 2020 being sold in the offering, certain assets held by Magyar Bancorp, MHC and the $10.00 per share price, the number of shares of common stock we are offering for sale ranges from 2,890,000 shares to 3,910,000 shares. The purchase price of $10.00 per share was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. The exchange ratio ranges from 0.9027 shares at the minimum of the offering range to 1.2213 shares at the maximum of the offering range, and will generally preserve in Magyar Bancorp the percentage ownership of public stockholders in Magyar Bancorp immediately before the completion of the conversion. RP Financial, LC. will update its appraisal before we complete the conversion and offering. If our pro forma market value at that time is either below $52.5 million or above $71.0 million, then, after consulting with the Federal Reserve Board and the NJDOBI, as required, we may: terminate the offering and promptly return all funds with interest; set a new offering range and provide all subscribers the opportunity to place a new order; or take such other actions as may be permitted by the Federal Reserve Board, the NJDOBI and the Securities and Exchange Commission.

The appraisal is based in part on our financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded savings banks and savings and loan and bank holding companies that RP Financial, LC. considers comparable to Magyar Bancorp. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market. The peer group assets are as of September 30, 2020.

 

Company Name

   Ticker
Symbol
   Headquarters    Total
Assets
 
               (In millions)  

Elmira Savings Bank

   ESBK    Elmira, NY    $ 674  

ESSA Bancorp

   ESSA    Stroudsburg, PA    $ 1,894  

HMN Financial, Inc.

   HMNF    Rochester, MN    $ 898  

HV Bancorp, Inc.

   HVBC    Doylestown, PA    $ 508  

IF Bancorp, Inc.

   IROQ    Watseka, IL    $ 726  

PCSB Financial Corporation

   PCSB    Yorktown Heights, NY    $ 1,791  

Provident Bancorp, Inc.

   PVBC    Amesbury, MA    $ 1,498  

Prudential Bancorp, Inc.

   PBIP    Philadelphia, PA    $ 1,223  

Randolph Bancorp, Inc.

   RNDB    Stoughton, MA    $ 723  

Severn Bancorp, Inc.

   SVBI    Annapolis, MD    $ 939  

In applying each of the valuation methods, RP Financial, LC. considered adjustments to the pro forma market value based on a comparison of Magyar Bancorp with the peer group. RP Financial, LC. made downward adjustments for financial condition and liquidity of the shares. RP Financial, LC. made no adjustments for profitability, growth and viability of earnings, asset growth, primary market area, dividends, marketing of the issue, management, and effect of government regulations and regulatory reform. The downward adjustment applied for financial condition took into consideration Magyar Bancorp’s smaller asset size, less favorable credit quality measures and a lower pro forma return on equity in comparison to the peer group, while the downward adjustment for liquidity of the shares took into consideration Magyar Bancorp’s lower market capitalization and lower shares outstanding relative to the comparable peer group averages and medians.

The following table presents a summary of selected pricing ratios for Magyar Bancorp (on a pro forma basis) as of and for the twelve months ended December 31, 2020, and for the peer group companies based on earnings and other information as of and for the twelve months ended December 31, 2020, with stock prices as of February 5, 2021, as reflected in the appraisal report. Compared to the average pricing of the peer group, and based upon the information in the following table, our pro forma pricing ratios at the midpoint of the offering range



 

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indicated a discount of 20.9% on a price-to-book value basis, a discount of 23.7% on a price-to-tangible book value basis, and a premium of 86.5% on a price-to-earnings basis.

 

     Price-to-earnings multiple (1)      Price-to-book value ratio     Price-to-tangible book
value ratio
 

Magyar Bancorp (on a pro forma basis, assuming completion of the conversion)

       

Maximum

     28.02x        77.94     77.94

Midpoint

     23.83x        71.23     71.23

Minimum

     19.82x        63.86     63.86

Valuation of peer group companies, all of which are fully converted (on an historical basis)

       

Averages

     12.78x        90.10     93.40

Medians

     11.32x        89.45     92.99

 

(1)

Price-to-earnings multiples calculated by RP Financial, LC. in the independent appraisal are based on reported earnings. These ratios are different than those presented in “Pro Forma Data.”

The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the conversion and offering the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, the pricing ratios presented in the appraisal were used by RP Financial, LC. to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering – Stock Pricing and Number of Shares to be Issued.”

The Exchange of Existing Shares of Magyar Bancorp Common Stock

If you are a stockholder of Magyar Bancorp immediately before the completion of the conversion, your shares will be converted into new shares of common stock of Magyar Bancorp. The number of shares of common stock you will receive will be based on the exchange ratio, which will depend upon our final appraised value and the percentage of outstanding shares of Magyar Bancorp common stock owned by public stockholders immediately before the completion of the conversion. The table also shows the number of shares of Magyar Bancorp common stock a hypothetical owner of Magyar Bancorp common stock would receive in exchange for 100 shares of Magyar Bancorp common stock owned at the completion of the conversion, depending on the number of shares of common stock issued in the offering.

 

     Shares to be Sold in
The Offering
    New Shares of Magyar
Bancorp to be Issued for
Shares of
Existing Magyar Bancorp
    Total Shares
of Common
Stock to be
Issued in
Exchange and
Offering
     Exchange
Ratio
     Equivalent
Value of
Shares
Based
Upon
Offering
Price (1)
     Equivalent
Pro Forma
Tangible
Book Value
Per
Exchanged
Share (2)
     Whole
Shares to
be
Received
for 100
Existing
Shares (3)
 
     Amount      Percent     Amount      Percent  

Minimum

     2,890,000        55.1     2,356,399        44.9     5,246,399        0.9027      $ 9.03      $ 15.66        90  

Midpoint

     3,400,000        55.1     2,772,234        44.9     6,172,234        1.0620      $ 10.62      $ 14.04        106  

Maximum

     3,910,000        55.1     3,188,070        44.9     7,098,070        1.2213      $ 12.21      $ 12.83        122  

 

(1)

Represents the value of shares of Magyar Bancorp common stock to be received in the conversion by a holder of one share of Magyar Bancorp, pursuant to the exchange ratio, based upon the $10.00 per share offering price.

(2)

Represents the pro forma tangible book value per share at each level of the offering range multiplied by the respective exchange ratio. At December 31, 2020, Magyar Bancorp’s tangible book value per share was $10.02.

(3)

Cash will be paid in lieu of fractional shares.

No fractional shares of Magyar Bancorp common stock will be issued to any public stockholder of Magyar Bancorp. For each fractional share that otherwise would be issued, we will pay in cash an amount equal to the



 

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product obtained by multiplying the fractional share interest to which the holder otherwise would be entitled by the $10.00 per share offering price.

Intended Use of the Proceeds From the Offering

We intend to contribute at least 50% of the net proceeds from the offering to Magyar Bank, fund a loan to our employee stock ownership plan to finance its purchase of shares of common stock in the offering and retain the remainder of the net proceeds from the offering at Magyar Bancorp. Therefore, assuming we sell 3,400,000 shares of common stock in the offering at the midpoint of the offering range, and we have net proceeds of $32.5 million, we intend to contribute $16.3 million to Magyar Bank, loan $2.7 million to our employee stock ownership plan to fund its purchase of shares of common stock and retain the remaining $13.5 million of the net proceeds at Magyar Bancorp.

Magyar Bancorp may use the funds it retains for investment in securities, to repurchase shares of common stock, to acquire other financial institutions or financial services companies, to pay cash dividends and for other general corporate purposes. Magyar Bank may use the proceeds it receives to support increased lending, enhance existing, or support growth and the development of new, products and services, or expand its branch network by establishing or acquiring new branches or by acquiring other financial institutions or financial services companies. We do not currently have any agreements or understandings regarding any acquisition or branch transactions.

See “How We Intend to Use the Proceeds from the Offering” for additional information.

Persons Who May Order Shares of Common Stock in the Offering

We are offering the shares of common stock for sale in a subscription offering in the following descending order of priority:

 

  (i)

To depositors with accounts at Magyar Bank with aggregate balances of at least $50.00 at the close of business on December 31, 2019.

 

  (ii)

To our tax-qualified employee benefit plans (including Magyar Bank’s employee stock ownership plan and 401(k) Plan), which may subscribe for, in the aggregate, up to 10% of the shares of common stock sold in the offering. We expect our employee stock ownership plan to purchase 8% of the shares of common stock sold in the offering.

 

  (iii)

To depositors with accounts at Magyar Bank with aggregate balances of at least $50.00 at the close of business on March 31, 2021.

 

  (iv)

To depositors of Magyar Bank at the close of business on May 3, 2021.

Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in the New Jersey counties of Middlesex, Somerset, Monmouth, Hunterdon and Union and then to existing stockholders of Magyar Bancorp at the close of business on May 3, 2021. The community offering may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering and the community offering in a syndicated community offering. KBW will act as sole manager for the syndicated community offering. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering, and our interpretation of the terms and conditions of the plan of conversion will be final. Any determination to accept or reject stock orders in the community offering or syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

If we receive orders for more shares than we are offering for sale, we may not be able to fully or partially fill your order. A detailed description of the subscription offering, the community offering and the syndicated community offering, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus entitled “The Conversion and Offering.”



 

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Limits on How Much Common Stock You May Purchase

The minimum number of shares of common stock that may be purchased is 25 shares.

Generally, no individual or individuals acting through a single qualifying account may purchase more than 40,000 shares ($400,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 50,000 shares ($500,000) of common stock:

 

   

your spouse or relatives of you or your spouse living in your house;

 

   

most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or

 

   

other persons who may be your associates or persons acting in concert with you.

Unless we determine otherwise, persons having the same residence or mailing address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to the overall purchase limitation of 50,000 shares ($500,000).

In addition to the above purchase limitations, there is an ownership limitation for current stockholders of Magyar Bancorp other than our employee stock ownership plan. Shares of common stock that you purchase in the offering individually and together with persons described above, plus any shares you and they receive in exchange for existing shares of Magyar Bancorp common stock, may not exceed 9.9% of the total shares of common stock to be issued and outstanding after the completion of the conversion and offering. However, if, based on your current ownership level, you will own more than 9.9% of the total shares of common stock of Magyar Bancorp to be issued and outstanding after the completion of the conversion and offering following the exchange of your shares of Magyar Bancorp common stock, you will be ineligible to purchase any new shares in the offering. You will be required to obtain regulatory approval or non-objection before acquiring 10% or more of Magyar Bancorp’s common stock.

Subject to regulatory approval, we may increase or decrease the purchase and ownership limitations at any time. See the detailed description of the purchase limitations in “The Conversion and Offering – Additional Limitations on Common Stock Purchases.”

How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering

In the subscription offering and community offering, you may pay for your shares only by:

 

  (i)

personal check, bank check or money order made payable to Magyar Bancorp, Inc.; or

 

  (ii)

authorizing us to withdraw available funds (without any early withdrawal penalty) from your Magyar Bank deposit account(s), other than checking accounts or individual retirement accounts (IRAs).

You may not use any type of third-party check to pay for shares of common stock. Do not submit cash. Wire transfers will not be accepted. Applicable regulations prohibit Magyar Bank from lending funds or extending credit to any person to purchase shares of common stock in the offering. You may not submit a Magyar Bank line of credit check. You may not designate withdrawal from Magyar Bank’s accounts with check-writing privileges; instead, please submit a check. If you request a direct withdrawal from an account with check-writing privileges, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and will immediately withdraw the amount from the specified account(s). You may not authorize direct withdrawal from a Magyar Bank individual retirement account, or IRA. See “– Using Individual Retirement Account Funds to Purchase Shares of Common Stock.”

You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Magyar Bancorp, Inc. or



 

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authorization to withdraw funds from one or more of your Magyar Bank deposit accounts, provided that the stock order form is received (not postmarked) before 2:00 p.m., Eastern Time, on June 18, 2021, which is the expiration of the subscription offering period. You may submit your stock order form and payment by overnight delivery to the address listed on the stock order form (recommended) or regular mail using the stock order reply envelope provided. You may also hand-deliver stock order forms to Magyar Bank’s corporate headquarters located at 400 Somerset Street, New Brunswick, New Jersey. Hand-delivered stock order forms will be accepted only at this location. We will not accept stock order forms at our other offices. Do not mail stock order forms to Magyar Bank’s offices.

See “The Conversion and Offering – Procedure for Purchasing Shares in the Subscription and Community Offerings – Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.

Using Individual Retirement Account Funds to Purchase Shares of Common Stock

You may be able to subscribe for shares of common stock using funds in your IRA or other retirement account. If you wish to use some or all of the funds in your Magyar Bank IRA or other retirement account, the applicable funds must be transferred to a self-directed account maintained by an independent custodian or trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent custodian or trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, as soon as possible but in no event later than two weeks before the June 18, 2021 offering deadline, for assistance with purchases using funds in your IRA or other retirement account you may have at Magyar Bank or elsewhere. Whether you may use such funds to purchase shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

See “The Conversion and Offering – Procedure for Purchasing Shares in the Subscription and Community Offerings – Payment for Shares” and “– Using Individual Retirement Account Funds” for a complete description of how to use IRA funds to purchase shares of common stock in the offering.

Market for Common Stock

Existing publicly held shares of Magyar Bancorp’s common stock are listed on the Nasdaq Global Market under the symbol “MGYR.” Upon completion of the conversion, we expect the shares of common stock of Magyar Bancorp will continue to list and trade on the Nasdaq Global Market under the same symbol “MGYR.” In order to list our stock on the Nasdaq Global Market, we are required to have at least three broker-dealers who will make a market in our common stock. As of May 3, 2021, Magyar Bancorp had 18 registered market makers in its common stock.

Our Dividend Policy

Magyar Bancorp has never paid dividends. No decision has been made with respect to the amount, if any, and timing of any dividend payments following the completion of the conversion and offering. The amount of dividends to be paid, if any, will be subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. We cannot assure you that we will pay dividends in the future, or that any such dividends will not be reduced or eliminated in the future.

For information regarding our proposed dividend policy, see “Our Dividend Policy.”

Purchases by Directors and Executive Officers

We expect our directors and executive officers, together with their associates, to subscribe for 90,500 shares of common stock in the offering, representing 2.7% of the shares to be sold at the midpoint of the offering range. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering. Following the conversion, our directors and executive officers, together with their associates, are expected to beneficially own 322,064 shares of common stock, or 5.2% of our



 

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total outstanding shares of common stock at the midpoint of the offering range, which includes shares they currently own in Magyar Bancorp that will be converted into new shares of Magyar Bancorp.

See “Subscriptions by Directors and Executive Officers” for more information on the proposed purchases of shares of common stock by our directors and executive officers.

Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings

The deadline for submitting orders to purchase shares of common stock in the subscription and community offerings is 2:00 p.m., Eastern Time, on June 18, 2021, unless we extend this deadline. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time.

Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on June 18, 2021, whether or not we have been able to locate each person entitled to subscription rights.

See “The Conversion and Offering – Procedure for Purchasing Shares in the Subscription and Community Offerings – Expiration Date” for a complete description of the deadline for purchasing shares in the offering.

You May Not Sell or Transfer Your Subscription Rights

Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe you have sold or transferred your subscription rights. On the stock order form, you cannot add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you. Doing so may jeopardize your subscription rights. You may only add those who were eligible to purchase shares of common stock in the subscription offering at your date of eligibility. In addition, the stock order form requires that you list all deposit accounts you held at your date of eligibility, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation.

Delivery of Shares of Common Stock

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. We expect trading in the stock to begin on the day of completion of the conversion and offering or the next business day. The conversion and offering are expected to be completed as soon as practicable following satisfaction of the conditions described below in “– Conditions to Completion of the Conversion.” Until a statement reflecting your ownership of shares of common stock is available and delivered to you, you may not be able to sell the shares of common stock that you purchased in the offering, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

Conditions to Completion of the Conversion

We cannot complete the conversion and offering unless:

 

   

The plan of conversion is approved by a majority of votes eligible to be cast by the depositors of Magyar Bank as of the close of business on May 3, 2021;



 

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The plan of conversion is approved by Magyar Bancorp stockholders holding at least two-thirds of the outstanding shares of common stock of Magyar Bancorp as of the close of business on May 3, 2021, including shares held by Magyar Bancorp, MHC;

 

   

The plan of conversion is approved by Magyar Bancorp stockholders holding a majority of the outstanding shares of common stock of Magyar Bancorp as of the close of business on May 3, 2021, excluding shares held by Magyar Bancorp, MHC;

 

   

We sell at least the minimum number of shares of common stock offered in the offering; and

 

   

We receive all required regulatory approvals to complete the conversion and offering.

Magyar Bancorp, MHC intends to vote its shares in favor of the plan of conversion. At the close of business on May 3, 2021, Magyar Bancorp, MHC owned 3,200,450 shares, or approximately 55.1%, of the outstanding shares of common stock of Magyar Bancorp. At the close of business on May 3, 2021, the directors and executive officers of Magyar Bancorp and their affiliates owned 218,049 shares of Magyar Bancorp, or 3.8% of the outstanding shares of common stock and 8.4% of the outstanding shares of common stock excluding shares held by Magyar Bancorp, MHC. They intend to vote those shares in favor of the plan of conversion.

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

If we do not receive orders for at least 2,890,000 shares of common stock, we may take one or more steps to sell the minimum number of shares of common stock in the offering range. Specifically, we may:

 

  (i)

increase the purchase and ownership limitations; and/or

 

  (ii)

seek regulatory approval to extend the offering beyond August 2, 2021, as long as we resolicit subscribers who previously submitted subscriptions in the offering.

If we extend the offering past August 2, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to the notice of extension, we will cancel your stock order and promptly return your funds with interest at 0.05% per annum for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount and who indicated a desire to be resolicited on the stock order form will be given the opportunity to increase their subscriptions up to the then-applicable limit.

Possible Change in the Offering Range

RP Financial, LC. will update its appraisal before we complete the conversion and offering. If our pro forma market value at that time is either below $52.5 million or above $71.0 million, then, after consulting with our regulators, we may:

 

   

terminate the offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings);

 

   

set a new offering range; or

 

   

take such other actions as may be permitted by our regulators.

If we set a new offering range, we will promptly return funds, with interest at 0.05% per annum, for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them to place a new stock order for a period of time.



 

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Possible Termination of the Offering

We may terminate the offering at any time before the special meeting of depositors of Magyar Bank and the special meeting of stockholders of Magyar Bancorp that have been called to vote on the conversion, and at any time after depositor and stockholder approval with regulatory approval. If we terminate the offering, we will promptly return your funds with interest at 0.05% per annum, and we will cancel deposit account withdrawal authorizations.

Delivery of Prospectus

To ensure that each person receives a prospectus at least 48 hours before the deadline for orders for common stock, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or stock order form by means other than U.S. mail. We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on June 18, 2021, whether or not we have been able to locate each person entitled to subscription rights.

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

We expect our employee stock ownership plan, which is a tax-qualified retirement plan operated for the benefit of Magyar Bank’s employees, to purchase up to 8% of the shares of common stock we sell in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership plan’s subscription order will not be filled and the employee stock ownership plan may elect to purchase shares in the open market following the completion of the conversion, subject to any required regulatory approvals.

We intend to implement one or more new stock-based benefit plans no earlier than six months after completion of the conversion. Stockholder approval of these plans would be required. We have not determined whether we would adopt the plans within or after 12 months following the completion of the conversion. If we implement stock-based benefit plans within 12 months following the completion of the conversion, the stock-based benefit plans would be limited to reserving a number of shares (i) up to 4% of the shares of common stock sold in the offering for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering for issuance pursuant to the exercise of stock options by key employees and directors. If the stock-based benefit plan is adopted more than 12 months after the completion of the conversion, it would not be subject to the percentage limitations set forth above. We have not yet determined the definitive number of shares that would be reserved for issuance under these plans. For a description of our current stock-based benefit plan, see “Management – Benefits to be Considered Following Completion of the Conversion – Stock-Based Benefit Plans.”

The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve a number of shares of common stock equal to 4% and 10% of the shares sold in the offering for restricted stock awards and stock options, respectively. The table shows the dilution to stockholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market. A portion of the stock grants shown in the table below may be made to non-management employees. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.



 

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     Number of Shares to be Granted or Purchased     Dilution
Resulting From
Issuance of
Shares for
Stock-Based
Benefit Plans
    Value of Grants (In Thousands) (1)  
     At Minimum of
Offering Range
     At
Maximum of
Offering Range
     As a Percentage
of Common
Stock to be Sold
in the Offering
    At
Minimum of
Offering Range
     At Maximum of
Offering Range
 

Employee stock ownership plan

     231,200        312,800        8.0     N/A  (2)    $ 2,312      $ 3,128  

Restricted stock awards

     115,600        156,400        4.0       2.16     1,156        1,564  

Stock options

     289,000        391,000        10.0       5.22     916        1,239  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

 

Total

     635,800        860,200        22.0     7.16   $ 4,384      $ 5,931  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

 

 

(1)

The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value for restricted stock awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $3.17 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of ten years; no dividend yield; a risk-free rate of return of 0.93%; and expected volatility of 22.94%. The actual value of stock options granted will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.

(2)

No dilution is reflected for the employee stock ownership plan because such shares are assumed to be purchased in the offering.

We may fund our stock-based benefit plans through open market purchases or new issuances of stock.

Tax Consequences

Magyar Bancorp, MHC, Magyar Bancorp and Magyar Bank have received an opinion of counsel, Luse Gorman, PC, regarding the material federal income tax consequences of the conversion, and have received an opinion of Hamilton & Babitts, Fairfield, New Jersey, regarding the material New Jersey tax consequences of the conversion. As a general matter, the conversion will not be a taxable transaction for purposes of federal or state income taxes to Magyar Bancorp, MHC, Magyar Bancorp, Magyar Bank, persons eligible to subscribe in the subscription offering, or existing stockholders of Magyar Bancorp (except as to cash paid for fractional shares). Existing stockholders of Magyar Bancorp who receive cash in lieu of fractional shares of Magyar Bancorp will recognize a gain or loss equal to the difference between the cash received and the tax basis of the fractional share.

Risk Factors

An investment in Magyar Bancorp’s common stock is subject to risk, including risks related to our business and this offering.

Specific areas of risk related to our business include those related to the COVID-19 pandemic; our lending activities; laws and regulations; market interest rates; our business strategy; economic conditions; competitive matters; operational matters; accounting matters; our reputation; our existing equity plan; and legal matters.

Specific risks related to this offering include those related to the future trading price of the common stock of Magyar Bancorp; use of the net offering proceeds; our return on equity after the completion of the offering; intended new stock-based benefit plans; anti-takeover factors; forum selection provision for certain litigation; the trading market for the common stock of Magyar Bancorp; the irrevocability of your investment decision; and potential adverse tax consequences related to subscription rights.

Before making an investment decision, you should read this entire document carefully, including the section entitled “Risk Factors” that immediately follows and that discusses the above risks in further detail.

How You Can Obtain Additional Information – Stock Information Center

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or offering, call our Stock Information Center at (877) 643-8198. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time, and will be closed on bank holidays.



 

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RISK FACTORS

You should consider carefully the following risk factors in evaluating an investment in the shares of common stock. In addition to these risks and the other risks and uncertainties described elsewhere in this prospectus, there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or results of operations.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has and will continue to pose risks and could harm our business, results of operations and prospects.

The COVID-19 pandemic is having an adverse impact on Magyar Bancorp and Magyar Bank, our customers and the communities we serve. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 outbreak on our business, customers, employees and third-party service providers. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened in an efficient manner. Additionally, the responses of various governmental and nongovernmental authorities to curtail business and consumer activities in an effort to mitigate the pandemic are expected to have material long-term effects on Magyar Bancorp and Magyar Bank and our customers which are difficult to quantify in the near-term or long-term.

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

decreased demand for banking services resulting from adverse impacts of the coronavirus on businesses deemed to be “non-essential” by governments in the markets we serve; and

 

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increasing or protracted volatility in the price of our common stock.

Risks Related to Our Market Area and Competitive Factors

A worsening of economic conditions could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could have an adverse effect on our results of operations.

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

In addition, the COVID-19 pandemic is having an adverse impact on Magyar Bancorp and Magyar Bank, our customers and the communities we serve. The adverse effect of the COVID-19 pandemic on Magyar Bancorp and Magyar Bank, our customers and the communities where we operate may adversely affect our business, results of operations and financial condition for an indefinite period of time.

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

 

   

demand for our products and services may decline;

 

   

loan delinquencies, problem assets and foreclosures may increase;

 

   

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

 

   

the value of our securities portfolio may decline; and

 

   

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

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

The geographic concentration of our loan portfolio and lending activities make us vulnerable to a downturn in our local market area.

While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in central and northern New Jersey. We believe that this geographic concentration makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.

 

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Strong competition within our market area may limit our growth and profitability.

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

Our small size may make it more difficult for us to compete.

Our asset size may make it more difficult to compete with other financial institutions that are larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Lower earnings may also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base may make it difficult to generate meaningful non-interest income from such activities as securities and insurance brokerage. Finally, as an institution smaller than many in our market area, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.

Risks Related to our Lending Activities

We intend to increase our originations of commercial real estate and commercial business loans. These loans involve credit risks that could adversely affect our financial condition and results of operations.

At December 31, 2020, commercial real estate loans totaled $260.3 million, or 42.9% of our loan portfolio, and commercial business loans (excluding PPP loans) totaled $45.2 million, or 7.4% of our loan portfolio. Given their larger balances and the complexity of the underlying collateral, commercial real estate loans and commercial business loans generally have more risk than the one- to four-family residential mortgage loans we originate. Because the repayment of commercial real estate loans and commercial business loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of non-performing loans. Further, unlike residential mortgage and commercial real estate loans, commercial business loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may depreciate over time, may be more difficult to appraise and may be more susceptible to fluctuation in value at default. In addition, the physical condition of non-owner-occupied properties may be below that of owner-occupied properties due to lax property maintenance standards, which have a negative impact on the value of the collateral properties. As our commercial real estate and commercial business loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.

An increase in market interest rates may reduce our loan origination volume, particularly refinance volume which would have a material adverse effect on our profitability and results of operations.

The historically low interest rate environment in recent periods has contributed to our loan growth, particularly in one- to four-family residential mortgage loans where refinance volume has been relatively high. During the quarter ended December 31, 2020 and the year ended September 30, 2020, we originated $9.6 million and $31.3 million of one- to four-family residential mortgage loans, of which $4.3 million and $19.0 million were refinances of existing loans. An increase in market interest rates may reduce our loan origination volume, particularly refinance volume, which would have a material adverse effect on our profitability and results of operations.

 

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If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.

Our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, requiring additions to our allowance, which could materially decrease our net income. The allowance for loan losses was $7.1 million at December 31, 2020 and increased $1.5 million during the year ended September 30, 2020 to $6.4 million. The increases were attributable to growth in total loans receivable and higher adjustments to the historical loss factors for economic conditions relating to the COVID-19 pandemic. Our allowance for loan losses was 1.17% of total loans and 71.0% of total non-performing loans at December 31, 2020. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. Based on this review, we believe our allowance for loan losses is adequate to absorb losses in our loan portfolio as of December 31, 2020.

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

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

We are subject to environmental liability risk associated with lending activities or properties we own.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.

We are subject to regulatory enforcement risk, reputation risk and litigation risk regarding our participation in the PPP, and we are subject to the risk that the SBA may not fund some or all PPP loan guarantees.

The CARES Act included the PPP as a loan program administered through the SBA. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved lenders, subject to detailed qualifications and eligibility criteria.

Because of the short timeframe between the passing of the CARES Act and implementation of the PPP, some of the rules and guidance relating to PPP were issued after lenders began processing PPP applications. Also, there was and continues to be uncertainty in the laws, rules and guidance relating to the PPP. Since the opening of the PPP, several banks have been subject to litigation regarding the procedures used in processing PPP applications and the payment of fees to agents that assisted borrowers in obtaining PPP loans. In addition, some banks and borrowers have received negative media attention associated with PPP loans. We may be exposed to litigation risk and negative media attention related to our participation in the PPP. If any such litigation is not resolved in our

 

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favor, it may result in significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation or media attention could have a material adverse impact on our business, financial condition, and results of operations.

Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition, and thereby adversely affect your investment.

We also have credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which we originated, funded or serviced loans, including any issue with the eligibility of a borrower to receive a PPP loan. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

Risks Related to Laws and Regulations

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

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

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

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

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

 

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We are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5%, and the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount.

The application of these capital requirements could, among other things, result in lower returns on equity, and result in regulatory actions if we are unable to comply with such requirements. Specifically, following the completion of the offering, Magyar Bank’s ability to pay dividends to Magyar Bancorp will be limited if it does not maintain the capital conservation buffer required by the capital rules, which may further limit Magyar Bancorp’s ability to pay dividends to its stockholders. See “Supervision and Regulation – Federal Banking Regulation – Capital Requirements.”

The Federal Reserve Board may require us to commit capital resources to support Magyar Bank.

Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Thus, any borrowing that must be done by Magyar Bancorp to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board, which regulates the money supply and credit conditions. Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Risks Related to Market Interest Rates

A continuation of the historically low interest rate environment may adversely affect our net interest income and profitability.

In recent years the Federal Reserve Board has maintained interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. Our ability to reduce our interest expense may be limited at current interest rate levels while the average yield on our interest-earning assets may

 

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continue to decrease. A continuation of a low interest rate environment may adversely affect our net interest income, which would have an adverse effect on our profitability.

Future changes in interest rates could reduce our profits and asset values.

Net interest income makes up a majority of our income and is based on the difference between:

 

   

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

 

   

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

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many savings banks, our interest-bearing liabilities generally have shorter contractual maturities than our interest-earning assets. This imbalance can create significant earnings volatility because market interest rates change over time. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. In a period of declining interest rates, the interest income we earn on our assets may decrease more rapidly than the interest we pay on our liabilities, as borrowers prepay or refinance mortgage loans, and mortgage-backed securities and callable investment securities are called, requiring us to reinvest those cash flows at lower, current interest rates. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and ultimately affect our earnings.

Changes in interest rates also affect the current market value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2020, the fair value of our total securities portfolio was $47.7 million. The unrealized net gain on securities totaled $468,000 on a pre-tax basis at December 31, 2020.

We evaluate interest rate sensitivity using models that estimate the change in Magyar Bank’s net interest income over a range of interest rate scenarios. At December 31, 2020, in the event of an immediate 200 basis point increase in interest rates, the model projects that we would experience a $120,000, or 0.5%, increase in net interest income in the first year following the change in interest rates, and a $208,000, or 0.9%, increase in net interest income in the second year following the change in interest rates. At December 31, 2020, in the event of an immediate 100 basis point decrease in interest rates, the model projects that we would experience a $636,000, or 2.6%, decrease in net interest income in the first year following the change in interest rates, and a $1.1 million, or 4.5%, decrease in net interest income in the second year following the change in interest rates.

At December 31, 2020, our available-for-sale securities portfolio totaled $14.8 million, which included $9.8 million in mortgage-backed securities and $5.0 million in callable bonds. To the extent interest rates increase and the value of our available-for-sale portfolio decreases, our stockholders’ equity will be adversely affected.

Risks Related to our Business Strategy

Because we intend to continue our emphasis on the origination of commercial business loans and commercial real estate loans, our lending risk has increased in recent years and may increase in future years.

At December 31, 2020, our portfolio of commercial business and commercial real estate loans totaled $351.5 million (including $46.0 million in PPP loans), or 57.9% of our total loans, compared to $349.1 million (including $56.0 million in PPP loans), or 57.1% of our total loans at September 30, 2020, $281.3 million, or 53.8% of our total loans at September 30, 2019 and $272.7 million, or 53.2% of our total loans at September 30, 2018. It is our intent to continue to emphasize the origination of commercial business and commercial real estate loans.

 

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Commercial business and commercial real estate loans generally have more risk than one-to four-family residential mortgage loans that we originate. At December 31, 2020, our non-performing loans increased $3.1 million to $10.0 million from $6.9 million at September 30, 2019. Because the repayment of these loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of these loans has been and may continue to be affected by adverse conditions in the real estate market or the local economy. Further, these loans typically have larger loan balances, and several of our borrowers have more than one commercial business and commercial real estate loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial business or commercial real estate loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral. Because we plan to continue to emphasize the origination of these loans, it may be necessary to increase our allowance for loan losses because of the increased credit risk associated with these types of loans. Any increase to our allowance for loan losses would adversely affect our earnings.

We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.

We depend on the services of the members of our senior management team who direct our strategy and operations. Our executive officers and lending personnel possess substantial expertise, extensive knowledge of our markets and key business relationships, and have been integral in the restructuring of our operations, including the implementation of a more aggressive sales culture within our institution. Any one of them could be difficult to replace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management.”

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In addition, we will continue to invest in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

Acquisitions may disrupt our business and dilute stockholder value.

We evaluate merger and acquisition opportunities with other financial institutions and financial services companies. As a result, negotiations may take place and future mergers or acquisitions with consideration consisting of cash and/or equity securities may occur at any time. We would seek acquisition partners that offer us either significant market presence or the potential to expand our market footprint and improve profitability through economies of scale or expanded services.

Acquiring other banks, businesses, or branches may have an adverse effect on our financial results and may involve various other risks commonly associated with acquisitions, including, among other things:

 

   

payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term;

 

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potential exposure to unknown or contingent liabilities of the target company, as well as potential asset quality problems of the target company;

 

   

potential volatility in reported income associated with goodwill impairment losses;

 

   

difficulty and expense of integrating the operations and personnel of the target company;

 

   

inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits of the acquisition;

 

   

potential disruption to our business and diversion of our management’s time and attention;

 

   

the possible loss of key employees and customers of the target company; and

 

   

potential changes in banking or tax laws or regulations that may affect the target company.

Risks Related to Operational Matters

We face significant operational risks because of our reliance on technology. Our information technology systems may be subject to failure, interruption or security breaches.

Information technology systems are critical to our business. Our business requires us to collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and our own business, operations, plans and business strategies. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. Our computer systems, data management and internal processes, as well as those of third parties, are integral to our performance. Our operational risks include the risk of malfeasance by employees or persons outside our company, errors relating to transaction processing and technology, systems failures or interruptions, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery. There have been increasing efforts by third parties to breach data security at financial institutions. Such attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations. Although we take protective measures and believe that we have not experienced any of the data breaches described above, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures.

In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, or a breach of our security systems, including if confidential or proprietary information were to be mishandled, misused or lost, we could suffer financial loss, loss of customers and damage to our reputation, and face regulatory action or civil litigation. Any of these events could have a material adverse effect on our financial condition and results of operations. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits.

In addition, we outsource a majority of our data processing requirements to third-party providers. Accordingly, our operations are exposed to the risk that these vendors will not perform in accordance with our contractual agreements with them, or we also could be adversely affected if such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. If our third-party providers encounter difficulties, or if we have difficulty communicating with those service providers, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected, which could have a material adverse effect on our financial condition and results of operations. Threats to information security also exist in the processing of customer information through various other vendors and their personnel. To our knowledge, the services and programs provided to us by third parties have not experienced any material security breaches. However, the existence of cyber-attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

 

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Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

We rely on municipal deposits as a source of funds for our lending and investment activities. If we are unable to retain, or are forced to pay a higher rate on, these deposits, our net income and liquidity could be adversely affected.

We rely on municipal deposits, which can be price sensitive, as a source of funds for our lending and investment activities. At December 31, 2020, $125.1 million, or 20.4% of our total deposits, consisted of municipal deposits from local government entities. Several of our municipal deposits have high average balances. Given our dependence on high-average balance municipal funds deposits as a source of funds, our inability to retain such funds could significantly and adversely affect our liquidity. If we are forced to pay higher rates on our municipal accounts to retain those funds, or if we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment activities, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our municipal deposits, which would adversely affect our net income.

Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on our operations, earnings and financial condition.

A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived creditworthiness of U.S. government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affect the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse impact on us. Among other things, a downgrade in the U.S. government’s credit rating could adversely impact the value of our securities portfolio and may trigger requirements that we post additional collateral for trades relative to these securities. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse effects on the business, financial condition and results of operations.

Risks Related to Accounting Matters

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing this prospectus, as well as periodic reports we are required to file under the Securities Exchange Act of 1934, including our consolidated financial statements, our management is required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans, and the valuation of deferred income taxes as deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years when temporary differences between the financial statement carrying amounts and their respective tax bases are expected to the recovered or settled.

 

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Changes in accounting standards could affect reported earnings.

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.

Other Risks Related to Our Business

We are a community bank and our ability to maintain our reputation, which is critical to the success of our business, may materially adversely affect our performance.

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity incidents and questionable or fraudulent activities of our customers. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, any or all of which could adversely affect our business and operating results.

Legal and regulatory proceedings and related matters could adversely affect us.

We have been and may in the future become involved in legal and regulatory proceedings. We consider most of the proceedings to be in the normal course of our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation. There could be substantial costs and management diversion in such litigation and proceedings, and any adverse determination could have a materially adverse effect on our business, reputation, or our financial condition and results of our operations.

Risks Related to Security

System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

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

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

 

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

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

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

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

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

Risks Related to the Offering

The future price of our shares of common stock may be less than the $10.00 purchase price per share in the offering.

If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price. In many cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in laws and regulations, investor perceptions of Magyar Bancorp and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.

Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.

We intend to contribute between $13.7 million and $18.8 million of the net proceeds of the offering to Magyar Bank. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including repurchasing shares of our common stock and paying dividends. We also expect to use a portion of the net proceeds we retain to fund a loan to our employee stock ownership plan to purchase shares of common stock in the offering. Magyar Bank may use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. However, except for the funding the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have broad discretion in determining the amount of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as opening new branches or acquiring other financial institutions, may require the approval of the NJDOBI or the Federal Reserve Board. We have not established a timetable for investing the net proceeds, and we cannot predict how long we will require to invest the net proceeds. Our failure to reinvest these funds effectively would reduce our profitability and may adversely affect the value of our common stock.

 

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Our return on equity may be low following the offering. This could negatively affect the trading price of our shares of common stock.

Net income divided by average stockholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity may be low until we are able to leverage the additional capital we receive from the offering. Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plans we currently sponsor and intend to adopt. Our return on average equity was 3.85% for the year ended September 30, 2020, with consolidated equity of $56.9 million at September 30, 2020. Our pro forma consolidated equity as of December 31, 2020, assuming completion of the offering, is estimated to be between $82.1 million at the minimum of the offering range and $91.1 million at the maximum of the offering range. Until we can increase our net interest income and non-interest income and leverage the capital raised in the offering, our return on equity may be low, which may reduce the market price of our shares of common stock.

Our stock-based benefit plans will increase our expenses and reduce our income.

We intend to adopt one or more new stock-based benefit plans after the conversion, subject to stockholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors which we cannot predict at this time. If we adopt stock-based benefit plans within 12 months following the conversion, the shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the offering. If we adopt stock-based benefit plans more than 12 months after the completion of the conversion, we may adopt plans that allow for greater amounts of awards and options and, therefore, we could award restricted shares of common stock or grant options in excess of these amounts, which would further increase costs.

In addition, we will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for our employee stock ownership plan and for our new stock-based benefit plans, assuming such plans had been implemented at the beginning of the year, is estimated to be approximately $665,000 ($524,000 after tax) at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of our proposed stock-based plans, see “Management – Benefits to be Considered Following Completion of the Conversion.”

The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.

We intend to adopt one or more new stock-based benefit plans following the offering. These plans may be funded either through open market purchases of our common stock or from the issuance of authorized but unissued shares of common stock. Our ability to repurchase shares of our common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock repurchases, the availability of stock in the market, the trading price of our stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the new stock-based benefit plans through open market purchases, stockholders would experience a 5.22% dilution in ownership interest if newly issued shares of our common stock are used to fund stock options in an amount equal to 10% of the shares sold in the offering, and all such stock options are exercised, and a 2.16% dilution in ownership interest if newly issued shares of our common stock are used to fund shares of restricted common stock in an amount equal to 4% of the shares sold in the offering. Such dilution would also reduce earnings per share. If we adopt the plans more than 12 months following the conversion, new stock-based benefit plans would not be subject to these size limitations and stockholders could experience even greater dilution.

 

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Although the implementation of new stock-based benefit plans would be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.

We have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the conversion may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.

If we adopt stock-based benefit plans more than 12 months following the completion of the conversion, then grants of shares of common stock or stock options under our proposed stock-based benefit plans may exceed 4% and 10%, respectively, of shares of common stock sold in the offering. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “– Our stock-based benefit plans will increase our expenses and reduce our income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in “– The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.” Although the implementation of stock-based benefit plans would be subject to stockholder approval, the timing of the implementation of such plans will be at the discretion of our board of directors.

Various factors may make takeover attempts more difficult to achieve.

Certain provisions of our certificate of incorporation and bylaws and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Magyar Bancorp without our board of directors’ approval. Under regulations applicable to the conversion, for a period of three years following completion of the conversion, no person may offer to acquire or acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board and receive the Federal Reserve Board’s non-objection before acquiring control of a bank holding company. There also are provisions in our certificate of incorporation and bylaws that we may use to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of Magyar Bancorp without the consent of our board of directors, and may increase the cost of an acquisition. Taken as a whole, these statutory or regulatory provisions and provisions in our certificate of incorporation and bylaws could result in our being less attractive to a potential acquirer and therefore could adversely affect the market price of our common stock. For additional information, see “Restrictions on Acquisition of Magyar Bancorp” and “Management – Benefits to be Considered Following Completion of the Conversion.”

Our certificate of incorporation provides that, subject to limited exception, a state or federal court in the State of Delaware is the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, and other employees.

Our certificate of incorporation provides that, unless Magyar Bancorp consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Magyar Bancorp, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Magyar Bancorp to Magyar Bancorp or Magyar Bancorp’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine will be conducted in a state or federal court in the State of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. This exclusive forum provision does not apply to claims arising under the federal securities laws. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with Magyar Bancorp and its directors, officers, and other employees or may cause a stockholder to incur additional expense by having to bring a claim in a judicial forum that is distant from where the stockholder resides, or both. In addition, if a court were to find this exclusive forum provision to be inapplicable or unenforceable in a particular

 

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action, we may incur additional costs associated with resolving the action in another jurisdiction, which could have a material adverse effect on our financial condition and results of operations.

There may be a limited trading market in our shares of common stock, which would hinder your ability to sell our common stock and may lower the market price of our common stock.

We expect that our common stock will be continue to be listed and trade on the Nasdaq Global Market under the symbol “MGYR” upon conclusion of the offering, subject to compliance with certain conditions, including having 300 “round lot” stockholders (stockholders owning more than 100 shares) and at least three broker-dealers making a market for our common stock. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. Purchasers of common stock in this offering should have long-term investment intent and should recognize that there may be a limited trading market in the common stock, which could make it difficult to sell the common stock after the offering and may have an adverse impact on the price at which the common stock can be sold.

Our stock value may be negatively affected by applicable regulations that restrict stock repurchases.

Applicable regulations generally restrict us from repurchasing our shares of common stock during the first year following the offering. Stock repurchases are a capital management tool that can enhance the value of a company’s stock, and our inability to repurchase our shares of common stock during the first year following the offering may negatively affect our stock price.

You may not revoke your decision to purchase Magyar Bancorp common stock in the subscription or community offerings after you send us your order.

Funds submitted or automatic deposit withdrawals authorized to purchase shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, LC., among other factors, there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond August 2, 2021, or the number of shares to be sold in the offering is increased to more than 3,910,000 shares or decreased to fewer than 2,890,000 shares.

The distribution of subscription rights could have adverse income tax consequences.

If the subscription rights granted in connection with the offering are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received an opinion of counsel, Luse Gorman, PC, that it is more likely than not that such rights have no value; however, such opinion is not binding on the Internal Revenue Service.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The summary information presented below at each date or for each of the periods presented is derived in part from the consolidated financial statements of Magyar Bancorp. The information at and for the years ended September 30, 2020 and 2019 was derived from the audited consolidated financial statements of Magyar Bancorp included elsewhere in this prospectus. The information at and for the years ended September 30, 2018, 2017 and 2016 was derived in part from the audited consolidated financial statements of Magyar Bancorp that are not included in this prospectus. The following information is only a summary, and should be read in conjunction with the consolidated financial statements and related notes of Magyar Bancorp beginning on page F-1 of this prospectus.

 

     At December 31,
2020
     At September 30,  
     2020      2019      2018      2017      2016  
     (In thousands)  

Selected Financial Condition Data:

                 

Total assets

   $ 741,784      $ 753,997      $ 630,328      $ 623,968      $ 603,044      $ 584,377  

Cash and cash equivalents

     52,070        61,726        21,469        15,368        22,334        21,806  

Available-for-sale securities

     14,798        14,561        16,703        22,469        11,815        5,234  

Securities held to maturity

     32,493        30,443        29,481        33,645        51,368        52,934  

Loans receivable, net

     598,530        603,110        518,217        508,430        470,693        455,031  

Premises and equipment, net

     14,607        14,746        16,172        16,990        17,567        18,084  

Bank-owned life insurance

     14,049        13,971        13,647        11,843        11,550        11,257  

FHLB stock, at cost

     1,981        1,981        2,222        2,164        2,002        2,239  

Accrued interest receivable

     4,096        4,030        2,133        2,181        1,929        1,710  

Other assets

     7,088        6,835        2,756        2,292        2,730        4,000  

Other real estate owned

     2,072        2,594        7,528        8,586        11,056        12,082  

Total liabilities

     683,583        697,147        575,677        572,606        553,587        536,652  

Deposits

     612,064        618,330        530,075        530,137        515,201        492,650  

Borrowings

     60,260        67,410        36,189        35,524        31,905        36,040  

Accounts payable and other liabilities

     11,259        11,407        9,413        6,945        6,481        7,962  

Total equity

     58,201        56,850        54,651        51,362        49,457        47,725  

 

     For the Three Months
Ended

December 31,
     For the Years Ended September 30,  
   2020      2019      2020      2019      2018      2017      2016  
     (In thousands)  

Selected Data:

                    

Interest and dividend income

   $ 7,001      $ 6,772      $ 26,927      $ 27,103      $ 24,350      $ 21,978      $ 20,451  

Interest expense

     956        1,642        5,513        6,710        4,649        3,773        3,532  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     6,045        5,130        21,414        20,393        19,701        18,205        16,919  

Provision for loan losses

     640        210        1,666        668        997        1,343        1,366  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     5,405        4,920        19,748        19,725        18,704        16,862        15,553  

Other income

     1,225        404        1,716        2,136        2,121        1,999        2,145  

Other expenses

     4,724        4,533        18,353        17,600        17,324        16,444        15,943  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     1,906        791        3,111        4,261        3,501        2,417        1,755  

Income tax expense

     569        238        921        1,265        1,471        994        664  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,337      $ 553      $ 2,190      $ 2,996      $ 2,030      $ 1,423      $ 1,091  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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     At or For the Three
Months Ended December 31,
    At or For the Years Ended September 30,  
     2020     2019     2020     2019     2018     2017     2016  

Selected Financial Ratios and Other Data:

              

Performance Ratios: (1)

              

Return on average assets

     0.71     0.35     0.32     0.47     0.33     0.24     0.19

Return on average equity

     9.19     4.01     3.85     5.47     3.95     2.90     2.28

Interest rate spread (2)

     3.18     3.14     3.03     3.09     3.27     3.20     3.11

Net interest margin (3)

     3.38     3.44     3.31     3.41     3.49     3.36     3.27

Efficiency ratio (4)

     71.25     85.14     85.51     80.51     83.19     87.19     90.08

Non-interest expense to average total assets

     2.51     2.84     2.65     2.75     2.84     2.80     2.80

Average interest-earning assets to average interest-bearing liabilities

     136.93     127.93     132.47     128.21     126.51     123.92     122.60

Average equity to average total assets

     7.72     8.65     8.22     8.55     8.43     8.32     8.40

Asset Quality Ratios:

              

Non-performing assets to total assets

     1.63     2.01     1.63     2.29     1.52     2.22     2.79

Non-performing loans to total loans

     1.65     1.03     1.59     1.32     0.18     0.50     0.92

Allowance for loan losses to non-performing loans

     71.01     93.60     65.76     70.90     463.58     147.37     72.64

Allowance for loan losses to total loans

     1.17     0.96     1.05     0.93     0.82     0.73     0.67

Capital Ratios:

              

Common equity Tier 1 capital to risk-weighted assets

     11.85     11.79     11.84     11.84     11.44     11.80     11.82

Total capital (to risk-weighted assets)

     13.10     12.85     13.09     12.88     12.35     12.62     12.55

Tier 1 capital (to risk-weighted assets)

     11.85     11.79     11.84     11.84     11.44     11.80     11.82

Tier 1 capital (to total assets)

     7.91     8.87     7.84     8.94     8.55     8.45     8.53

Other Data:

              

Number of full-service offices

     7       7       7       7       7       7       6  

Number of full-time equivalent employees

     95.5       103.5       101.0       105.5       102.0       102.0       97.5  

 

(1)

Annualized for the three-month periods ended December 31, 2020 and 2019.

(2)

Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.

(3)

The net interest margin represents net interest income as a percent of average interest-earning assets for the year.

(4)

The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

 

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RECENT DEVELOPMENTS

The following tables set forth selected historical financial and other data of Magyar Bancorp for the periods and at the dates indicated. This information is only a summary and it should be read in conjunction with the business and financial information contained elsewhere in this prospectus, including the financial statements beginning on page F-1. The information at September 30, 2020 is derived in part from, and should be read together with, the audited consolidated financial statements and notes thereto of Magyar Bancorp at page F-1 of this prospectus. The information at March 31, 2021 and for the three months and six months ended March 31, 2021 and 2020 is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three months and six months ended March 31, 2021 are not necessarily indicative of the results to be achieved for the remainder of the fiscal year ending September 30, 2021 or any other period.

 

     At March 31,
2021
     At September 30,
2020
 
     (In thousands)  

Selected Financial Condition Data:

     

Total assets

   $ 758,779      $ 753,997  

Cash and cash equivalents

     43,013        61,726  

Available-for-sale securities

     14,259        14,561  

Securities held to maturity

     40,797        30,443  

Loans receivable, net

     616,975        603,110  

Premises and equipment, net

     14,543        14,746  

Bank-owned life insurance

     14,129        13,971  

FHLB stock, at cost

     1,935        1,981  

Accrued interest receivable

     3,999        4,030  

Other assets

     7,849        6,835  

Other real estate owned

     1,280        2,594  

Total liabilities

     699,294        697,147  

Deposits

     640,773        618,330  

Borrowings

     45,881        67,410  

Accounts payable and other liabilities

     12,640        11,407  

Total equity

     59,485        56,850  

 

     For the Three Months Ended
March 31,
     For the Six Months Ended
March 31,
 
     2021      2020      2021      2020  
     (In thousands)  

Selected Operating Data:

           

Interest and dividend income

   $ 7,122      $ 6,599      $ 14,124      $ 13,370  

Interest expense

     744        1,567        1,700        3,210  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     6,378        5,032        12,424        10,160  

Provision for loan losses

     467        420        1,107        631  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     5,911        4,612        11,317        9,529  

Other income

     937        374        2,162        778  

Other expenses

     4,690        4,560        9,416        9,090  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     2,158        426        4,063        1,217  

Income tax expense

     652        121        1,220        359  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,506      $ 305      $ 2,843      $ 858  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     At or For the Three Months
Ended March 31, (1)
    At or For the Six Months
Ended March 31, (1)
 
     2021     2020     2021     2020  

Performance Ratios:

        

Return on average assets

     0.80     0.19     0.75     0.27

Return on average equity

     10.33     2.22     9.53     3.09

Interest rate spread (2)

     3.47     3.03     3.33     3.08

Net interest margin (3)

     3.64     3.33     3.51     3.39

Efficiency ratio (4)

     68.49     91.46     69.86     88.19

Noninterest expense to average total assets

     2.49     2.80     2.50     2.82

Average interest-earning assets to average interest-bearing liabilities

     139.59     129.62     138.21     128.77

Average equity to average total assets

     7.73     8.43     7.91     8.61

Asset Quality Ratios:

        

Non-performing assets to total assets

     1.43     2.41     1.43     2.41

Non-performing loans to total loans

     1.52     1.67     1.52     1.67

Allowance for loan losses to non-performing loans

     79.09     60.59     79.09     60.59

Allowance for loan losses to total loans

     1.21     1.01     1.21     1.01

Capital Ratios:

        

Common equity Tier 1 capital to risk-weighted assets

     11.85     11.57     11.85     11.57

Total capital (to risk-weighted assets)

     13.10     12.69     13.10     12.69

Tier 1 capital (to risk-weighted assets)

     11.85     11.57     11.85     11.57

Tier 1 capital (to total assets)

     8.10     8.71     8.10     8.71

Other:

        

Number of full-service offices

     7       7       7       7  

Number of full-time equivalent employees

     94       105.5       94       105.5  

 

(1)

Annualized where appropriate.

(2)

Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.

(3)

Represents net interest income as a percent of average interest-earning assets.

(4)

Represents non-interest expense divided by the sum of net interest income and non-interest income.

 

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Impact of COVID-19 Outbreak

The extraordinary impact of the COVID-19 pandemic has created an unprecedented environment for consumers and businesses alike. To protect our employees and customers from potential exposure to the virus, all Magyar Bank lobbies continue to observe best practice protocols to limit exposure and/or spread of the virus.

To assist our loan customers, Magyar Bank has offered loan payment deferrals to borrowers unable to make their contractual payments due to COVID-19. Deferral requests are considered on a case-by-case basis and are initially approved for a three-month period for principal and interest payments or for interest-only payments depending on the borrower’s circumstances. An additional three-month period is available for businesses that remain unable to operate and for consumers unable to make their mortgage or home equity payments due to COVID-19. Additional deferrals will be considered for businesses experiencing a prolonged impact from the COVID-19 pandemic, such as the accommodation and food service industries. At March 31, 2021, Magyar Bank had 31 loans totaling $24.0 million to businesses in the accommodations and food services industries. Magyar Bank’s loan portfolio does not have a significant exposure to the travel or entertainment industry.

Through March 31, 2021, we had modified 284 loans aggregating $150.9 million for the deferral of principal and/or interest payments. Of these loans, at March 31, 2021, 247 loans aggregating $127.6 million had resumed making their contractual loan payments, 31 loans totaling $13.5 million had paid off (including their deferred payments), three loans totaling $7.8 million were currently deferred, and three loans totaling $2.0 million were past their deferral period and delinquent. Of the three delinquent deferred loans, one commercial business loan totaling $1.4 million was delinquent more than 90 days, one commercial real estate loan totaling $539,000 was delinquent 89 days and one residential loan totaling $113,000 was delinquent 58 days at March 31, 2021. Details with respect to loans modifications as of March 31, 2021 are as follows:

 

Loan Type

   Number of
Loans
     Balance      Weighted Average
Interest Rate
 
     (Dollars in thousands)  

One- to four-family residential real estate (1)

     83      $ 21,725        4.07

Commercial real estate

     136        105,926        4.68

Construction

     4        2,630        3.77

Home equity lines of credit

     6        896        4.33

Commercial business

     24        6,245        6.06
  

 

 

    

 

 

    

 

 

 

Total

     253      $ 137,422        4.63
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes home equity loans.

Magyar Bank participated in the PPP to provide liquidity using the SBA platform to small businesses and self-employed individuals to maintain their staff and operations through the COVID-19 pandemic. This liquidity is in the form of a loan, 100% guaranteed by the SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0% and loan payments are deferred for the first 10 months following the covered period, which is eight to twenty-four weeks following the date the loan is made. We originated 350 “First Draw” loans totaling $56.0 million through March 31, 2021 for which we received $2.0 million in origination fees from the SBA. These fees are being amortized over the expected life of the loans, which is two years for loans originated prior to June 4, 2020 and five years for loans originated June 5, 2020 or later. Through March 31, 2021, 214 loans totaling $30.3 million had been forgiven by the SBA.

On December 27, 2020 the Economic Aid Act was signed into law, extending the SBA’s authority to guarantee “Second Draw” PPP loans, under generally the same terms and conditions available under the First Draw program, through March 31, 2021, subsequently extended by the Paycheck Protection Program Extension Act of 2021 to May 31, 2021. In order to qualify for a Second Draw PPP loan, an applicant must have experienced a revenue reduction of at least 25% in 2020 relative to 2019. As of March 31, 2021, we had originated 185 PPP loans totaling $26.8 million under the Economic Aid Act to its eligible customers. The Economic Aid Act also expanded the eligible expenditures for which a business could use PPP proceeds and provided for a simplified forgiveness application for PPP loans of $150,000 or less. At March 31, 2021, our PPP loans totaled $52.5 million.

 

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The Federal Reserve Board created the PPPLF to facilitate lending by eligible financial institutions to small businesses under the PPP. Under the PPPLF, the Federal Reserve Bank of New York provided advances with a fixed interest rate of 0.35% to Magyar Bank on a non-recourse basis, taking PPP loans as collateral. In addition, the Federal Deposit Insurance Corporation allows Magyar Bank to neutralize the effect of PPP loans financed under the PPPLF on Tier 1 leverage capital ratios. Magyar Bank funded its PPP loans with $36.9 million in advances from the PPPLF, $17.4 million of which was outstanding at March 31, 2021.

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

Comparison of Financial Condition at March 31, 2021 and September 30, 2020

Total Assets. Total assets increased $4.8 million, or 0.6%, to $758.8 million at March 31, 2021 compared to $754.0 million at September 30, 2020. The increase was attributable to higher balances of loans receivable and investment securities, partially offset by lower balances of cash and interest-earning deposits.

Cash and Cash Equivalents. Cash and interest-earning deposits with banks decreased $18.7 million, or 30.3% to $43.0 million at March 31, 2021 from $61.7 million at September 31, 2020. The decrease resulted primarily from loan originations and investment security purchases during the six months ended March 31, 2021.

Total Loans. Total loans receivable increased $15.1 million, or 2.5%, during the six months ended March 31, 2021 to $626.3 million at March 31, 2021 from $611.2 million at September 30, 2020. At March 31, 2021, our loans were comprised of the following: $275.7 million, or 44.0% of our loan portfolio, in commercial real estate loans, $208.7 million, or 33.3% of our total loan portfolio, in one- to four- family residential mortgage loans, $98.1 million, or 15.7% of our loan portfolio, in commercial business loans, $22.5 million, or 3.6% of our loan portfolio, in construction loans, $17.6 million, or 2.8% of our loan portfolio, in home equity lines of credit, and $3.7 million, or 0.6% of our loan portfolio, in other loans. Included with the commercial business loans were $52.5 million in PPP loans. The increase in total loans receivable at March 31, 2021 occurred in commercial real estate loans, which increased $27.5 million, or 11.1%. Partially offsetting this increase were decreases in construction loans, which decreased $5.7 million, commercial business loans, which decreased $2.9 million (PPP loans decreased $3.4 million), one- to four- family residential real estate loans (including home equity lines of credit), which decreased $3.4 million, and other loans, which decreased $411,000.

Total non-performing loans decreased $181,000, or 1.9%, to $9.5 million at March 31, 2021 from $9.7 million at September 30, 2020. The decrease was attributable to repayments of non-performing loans totaling $909,000, two foreclosed loans totaling $572,000 that were transferred to OREO, and the restructure of one loan totaling $218,000 during the six months ended March 31, 2021. Offsetting these decreases was the addition of four loans totaling $1.5 million. Due to the COVID-19 pandemic, foreclosures of collateral securing one- to four-family residential mortgage loans have been temporarily suspended while the foreclosure proceedings of commercial real estate are expected to slow significantly as court hearings have been postponed until further notice.

The ratio of non-performing loans to total loans decreased to 1.52% at March 31, 2021 from 1.59% at September 30, 2020. At March 31, 2021, included in the non-performing loan totals were seven commercial real estate loans totaling $2.5 million, two construction loans totaling $4.6 million, three commercial business loans totaling $1.5 million and two residential mortgage loans totaling $910,000. During the six months ended March 31, 2021, there was one charge-off totaling $50,000 and there were $97,000 in recoveries of previously charged-off non-performing loans.

The allowance for loan loss increased to $7.6 million at March 31, 2021 from $6.4 million at September 30, 2020, an increase of $1.2 million. The increase was attributable to $1.1 million in provisions for loan loss and $47,000 in net recoveries from loans previously charged off. The increased provision for loan losses, compared to a

 

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provision of $631,000 for the six months ended March 31, 2020, resulted from higher adjustments to our historical loan losses due to the prolonged economic impact of the COVID-19 pandemic on our consumer and business loan portfolios. The allowance for loan losses as a percentage of non-performing loans increased to 79.1% at March 31, 2021 compared to 65.8% at September 30, 2020. At March 31, 2021, our allowance for loan losses as a percentage of total loans was 1.21% compared with 1.05% at September 30, 2020.

Future increases in the allowance for loan losses may be necessary based on the growth of the loan portfolio, the change in composition of the loan portfolio, possible future increases in non-performing loans and charge-offs, and the possible deterioration of the current economic environment due to the COVID-19 pandemic.

Investment Securities. Investment securities increased $10.1 million, or 22.3%, to $55.1 million at March 31, 2021 from $45.0 million at September 30, 2020. The increase resulted primarily from the purchase of nine mortgage-backed securities totaling $19.8 million and five callable U.S. government-sponsored enterprise bond totaling $10.0 million during the six months ended March 31, 2021, offset, in part, by payments from mortgage-backed securities and bond calls totaling $19.3 million during the six months ended March 31, 2021. There were no sales of investment securities during the six months ended March 31, 2021.

Investment securities at March 31, 2021 consisted of $39.3 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $12.5 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, and $251,000 in “private-label” mortgage-backed securities. There were no other-than-temporary-impairment charges for investment securities for the six months ended March 31, 2021.

Bank-Owned Life Insurance. The cash surrender value of life insurance held for directors and officers of Magyar Bank was $14.1 million at March 31, 2021 compared with $14.0 million at September 30, 2020. During the six months ended March 31, 2021, we did not purchase any new bank-owned life insurance policies.

Other Real Estate Owned. Other real estate owned decreased $1.3 million, or 50.7%, to $1.3 million at March 31, 2021 from $2.6 million at September 30, 2020. During the six months ended March 31, 2021, the Company sold two properties totaling $1.7 million for a $79,000 gain, established valuation allowances totaling $215,000, and added two properties totaling $522,000 from the foreclosure of collateral securing non-performing loans. We are determining the proper course of action for its remaining other real estate owned, which may include holding the properties until the real estate market further improves, leasing properties to offset carrying costs and selling the properties.

Deposits. Total deposits increased $22.4 million, or 3.6%, to $640.8 million at March 31, 2021 from $618.3 million at September 30, 2020. The inflow in deposits occurred in non-interest bearing checking accounts, which increased $17.1 million, or 10.4%, to $180.6 million, in interest-bearing checking accounts (NOW), which increased $5.9 million, or 9.0%, to $71.4 million, in savings accounts, which increased $5.3 million, or 7.0%, to $80.2 million, and in money market accounts, which increased $4.5 million, or 2.4%, to $192.5 million. These increases were partially offset by a decrease in certificates of deposit (including individual retirement accounts), of $10.3 million, or 8.2%, to $116.1 million.

Brokered certificates of deposit decreased $5.0 million to $4.4 million at March 31, 2021 from $9.4 million at September 30, 2020. The decrease resulted from a $5.0 million brokered certificate of deposit which matured and was repaid from interest-earning deposits with banks during the six months ended March 31, 2021.

Borrowings. Borrowings decreased $21.5 million, or 31.9%, to $45.9 million at March 31, 2021 from $67.4 million at September 30, 2020. The decrease resulted from the repayment of $19.5 million in PPPLF advances from the Federal Reserve Bank during the six month period as the PPP loans securing the advances were forgiven by the SBA. Borrowings from the Federal Home Loan Bank of New York (the “FHLBNY”) decreased $2.0 million to $28.5 million from a matured term advance that was repaid from interest- earning deposits with banks during the six months ended March 31, 2021.

Stockholders’ Equity. Stockholders’ equity increased $2.6 million, or 4.6%, to $59.5 million at March 31, 2021 from $56.9 million at September 30, 2020. The increase in stockholders’ equity resulted primarily from net

 

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income of $2.8 million during the six months ended March 31, 2021. Book value per share of our common stock increased to $10.24 at March 31, 2021 from $9.78 at September 30, 2020.

We did not repurchase shares of our common stock during the six months ended March 31, 2021. Through March 31, 2021, we have repurchased 91,000 shares of our common stock at an average price of $8.41 pursuant to the second stock repurchase plan, which has reduced outstanding shares to 5,810,746.

Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020

Net Income. Net income increased $1.2 million, or 393.8%, to $1.5 million for the three months ended March 31, 2021 compared to net income of $305,000 for the three months ended March 31, 2020. The increase resulted from higher net interest and dividend income and non-interest income, partially offset by higher provisions for loan loss and other expenses.

Net Interest and Dividend Income. Net interest and dividend income increased $1.4 million, or 26.7%, to $6.4 million for the three months ended March 31, 2021 from $5.0 million for the three months ended March 31, 2020.

An increase of $105.3 million in average total interest-earning assets as well as a 31 basis point increase in the Company’s net interest margin to 3.64% for the three months ended March 31, 2021 compared to 3.33% for the three months ended March 31, 2020 accounted for the higher net interest and dividend income between periods.

The yield on interest-earning assets decreased 31 basis points to 4.06% for the three months ended March 31, 2021 from 4.37% for the three months ended March 31, 2020 due to lower market interest rates. The yield on investment securities decreased 80 basis points to 1.49% for the three months ended March 31, 2021 from 2.29% for the three months ended March 31, 2020 while the yield on loans receivable decreased nine basis points to 4.60% for the three months ended March 31, 2021 from 4.69% for the three months ended March 31, 2020. In addition, the yield on interest-earning deposits decreased 114 basis points to 0.13% for the three months ended March 31, 2021 from 1.27% for the three months ended March 31, 2020.

The cost of the Company’s interest-bearing liabilities decreased 75 basis points to 0.59% for the three months ended March 31, 2021 from 1.34% for the three months ended March 31, 2020 due to lower market interest rates. The cost of interest-bearing deposits decreased 77 basis points to 0.51% for the three months ended March 31, 2021 from 1.28% for the three months ended March 31, 2020 while the cost of borrowings decreased 93 basis points to 1.28% for the three months ended March 31, 2021 from 2.21% for the three months ended March 31, 2020. In addition, the average balance of non-interest bearing liabilities increased $56.7 million to $186.8 million for the three months ended March 31, 2021 from $130.1 million for the three months ended March 31, 2020.

Interest and Dividend Income. Interest and dividend income increased $523,000, or 7.9%, to $7.1 million for the three months ended March 31, 2021 compared to $6.6 million for the three months ended March 31, 2020. The increase was attributable to higher average balances of interest-earning assets, which increased $105.3 million between periods. The increase in average balances of interest-earning assets occurred in loans receivable, which increased $75.7 million, or 14.2%, in investment securities, which increased $7.3 million, or 16.1%, and in interest-earning deposits, which increased $22.4 million, or 84.0%. Growth in loans receivable was partially attributable to the origination of $82.8 million in PPP loans, of which $52.5 million were outstanding at March 31, 2021.

Interest earned on investment securities, including interest-earning deposits, and excluding FHLBNY stock, decreased $134,000, or 39.3%, to $207,000 for the three months ended March 31, 2021 from $341,000 for the three months ended March 31, 2020. The decrease resulted primarily from a 108 basis points decrease in average yield on investment securities and interest-earning deposits, to 0.83% for the three months ended March 31, 2021 from 1.91% for the three months ended March 31, 2020. The decrease in yield on interest-earning deposits reflected the lower interest rates paid on reserves by the Federal Reserve Bank as well as lower market interest rates on investment securities between the comparable periods.

Interest Expense. Interest expense decreased $823,000, or 52.5%, to $744,000 for the three months ended March 31, 2021 compared with $1.6 million for the three months ended March 31, 2020. Although the average balance of interest-bearing liabilities increased $42.0 million, or 9.0%, to $509.4 million from $467.4 million

 

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between the two periods, the cost of such liabilities decreased 75 basis points to 0.59% for the three months ended March 31, 2021 compared with 1.34% for the prior year period. Lower market interest rates accounted for the decrease in the cost of interest-bearing liabilities.

The average balance of interest-bearing deposits increased $17.5 million to $454.2 million for the quarter ended March 31, 2021 from $436.7 million for the quarter ended March 31, 2020, while the average cost of such deposits decreased 77 basis points to 0.51% from 1.28% between the two periods. As a result, interest paid on interest-bearing deposits decreased $829,000 to $569,000 for the three months ended March 31, 2021 compared with $1.4 million for the three months ended March 31, 2020.

Interest paid on borrowings increased $6,000, or 3.6%, to $175,000 for the three months ended March 31, 2021 from $169,000 for the prior year period. The increase resulted from a $24.5 million increase of in the average balance of such borrowings to $55.2 million for the three months ended March 31, 2021 from $30.7 million for the three months ended March 31, 2020, offset by a 93 basis point decrease in the average cost of borrowings to 1.28% for the three months ended March 31, 2021 from 2.21% for the three months ended March 31, 2020. Lower market interest rates contributed to the lower average cost of interest-bearing deposits while PPPLF advances contributed to the lower average cost of borrowings.

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

After an evaluation of these factors, management recorded a provision of $467,000 for the three months ended March 31, 2021 compared to $420,000 for the three months ended March 31, 2020. The increased provision for loan losses resulted from higher adjustments to our historical loan losses due to the prolonged economic impact of the COVID-19 pandemic on our consumer and business loan portfolios. In addition to the provisions, we recorded $43,000 in net charge-offs during the three months ended March 31, 2021 compared with $4,000 in net recoveries during the three months ended March 31, 2020.

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Significant Accounting Policies – Allowance for Loan Losses.” As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods. In addition, the ongoing effects of the COVID-19 pandemic on our borrowers may also result in larger additions to the allowance for loan losses in future periods.

Other Income. Other income increased $563,000, or 150.5%, to $937,000 during the three months ended March 31, 2021 compared to $374,000 for the three months ended March 31, 2020.

Fees for other customer services increased $303,000 for the three months ended March 31, 2021. The Company received a fee of 3.0% of the Small Business Relief Grant program it assisted Middlesex County with processing. There were no such fees recorded during the three months ended March 31, 2020.

Interest rate swap fees increased $106,000 for the three months ended March 31, 2021. The interest rate swap fees reflect the present value of mark-up fees received on back-to-back loan swap transactions. There were no such fees recorded during the three months ended March 31, 2020.

The Company also recorded higher gains from the sales of loans, which were $106,000 for the three months ended March 31, 2021 compared with no gains for the three months ended March 31, 2020.

 

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Other Expenses. Other expenses increased $130,000, or 2.9%, to $4.7 million during the three months ended March 31, 2021 from $4.6 million during the three months ended March 31, 2020.

The increase in other expenses was primarily attributable to professional fees, which increased $45,000, or 10.5%, due to higher legal and consulting fees related to the collection and foreclosure of non-performing loans. Compensation and benefit expenses increased $39,000, or 1.5%, due to higher incentive plan accruals, partially offset by lower compensation from lower full-time equivalent employees between periods. In addition, loan servicing expenses increased $28,000, or 32.6%, from higher loan origination and repayment activity, and occupancy expense increased $15,000, or 2.0%, from higher snowplowing and salting costs between periods.    

Income Tax Expense. We recorded tax expense of $652,000 on pre-tax income of $2.2 million for the three months ended March 31, 2021, compared to $121,000 on pre-tax income of $426,000 for the three months ended March 31, 2020. The Company’s effective tax rate for the three months ended March 31, 2021 was 30.2% compared with 28.4% for the three months ended March 31, 2020.

Comparison of Operating Results for the Six Months Ended March 31, 2021 and 2020

Net Income. Net income increased $2.0 million, or 231.4%, to $2.8 million during the six-month period ended March 31, 2021 compared with $858,000 for the six-month period ended March 31, 2020 due to higher net interest and dividend income and non-interest income, partially offset by higher provisions for loan loss and other expenses.

Net Interest and Dividend Income. Net interest and dividend income increased $2.2 million, or 22.3%, to $12.4 million for the six months ended March 31, 2021 from $10.2 million for the six months ended March 31, 2020.

An increase of $112.2 million in average total interest-earning assets as well as a 12 basis point increase in the Company’s net interest margin to 3.51% for the six months ended March 31, 2021 compared to 3.39% for the six months ended March 31, 2020 accounted for the higher net interest and dividend income between periods.

The yield on interest-earning assets decreased 47 basis points to 3.99% for the six months ended March 31, 2021 from 4.46% for the six months ended March 31, 2020 due to lower market interest rates. The yield on investment securities decreased 66 basis points to 1.60% for the six months ended March 31, 2021 from 2.26% for the six months ended March 31, 2020 while the yield on loans receivable decreased 26 basis points to 4.51% for the six months ended March 31, 2021 from 4.77% for the six months ended March 31, 2020. In addition, the yield on interest-earning deposits decreased 122 basis points to 0.14% for the six months ended March 31, 2021 from 1.36% for the six months ended March 31, 2020.

The cost of the Company’s interest-bearing liabilities decreased 72 basis points to 0.66% for the six months ended March 31, 2021 from 1.38% for the six months ended March 31, 2020 due to lower market interest rates. The cost of interest-bearing deposits decreased 72 basis points to 0.59% for the six months ended March 31, 2021 from 1.31% for the six months ended March 31, 2020 while the cost of borrowings decreased 103 basis points to 1.21% for the six months ended March 31, 2021 from 2.24% for the six months ended March 31, 2020. In addition, the average balance of non-interest bearing liabilities increased $55.2 million to $180.2 million for the six months ended March 31, 2021 from $125.0 million for the six months ended March 31, 2020.

Interest and Dividend Income. Interest and dividend income increased $754,000, or 5.6%, to $14.1 million for the six months ended March 31, 2021 from $13.4 million for the six months ended March 31, 2020. The increase was attributable to higher average balances of interest-earning assets, which increased $112.2 million between periods. The increase in average balances of interest-earning assets occurred in loans receivable, which increased $79.5 million, or 15.1%, in investment securities, which increased $3.7 million, or 8.1%, and in interest-earning deposits, which increased $29.0 million, or 127.7%. Growth in loans receivable was partially attributable to the origination of $82.8 million in PPP loans, of which $52.5 million were outstanding at March 31, 2021.

Interest earned on investment securities, including interest-earning deposits, and excluding FHLB stock, decreased $246,000, or 36.2%, to $433,000 for the six months ended March 31, 2021 from $679,000 the prior year period. The decrease resulted primarily from a 110 basis points decrease in average yield on investment securities

 

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and interest-earning deposits, to 0.86% for the six months ended March 31, 2021 from 1.96% for the six months ended March 31, 2020. The decrease in yield on interest-earning deposits reflected the lower interest rates paid on reserves by the Federal Reserve Bank as well as lower market interest rates on investment securities between the comparable periods.

Interest Expense. Interest expense decreased $1.5 million, or 47.0%, to $1.7 million for the six months ended March 31, 2021 compared with the six months ended March 31, 2020. The average balance of interest-bearing liabilities increased $49.4 million, or 10.6%, between the two periods, while the cost of such liabilities decreased 72 basis points to 0.66% for the six months ended March 31, 2021 compared with the prior year period. Lower market interest rates accounted for the decrease in the cost of interest-bearing liabilities.

The average balance of interest-bearing deposits increased $21.6 million to $453.7 million for the six months ended March 31, 2021 from $432.1 million for the six months ended March 31, 2020, while the average cost of such deposits decreased 72 basis points to 0.59% from 1.31% between the two periods. As a result, interest paid on interest-bearing deposits decreased $1.5 million to $1.3 million for the six months ended March 31, 2021 compared with $2.8 million for the six months ended March 31, 2020.

Interest paid on borrowings increased $1,000, or 0.3%, to $366,000 for the six months ended March 31, 2021 from $365,000 for the prior year period. The increase resulted from an increase of $27.7 million in the average balance of such borrowings to $60.3 million for the six months ended March 31, 2021 from $32.6 million for the six months ended March 31, 2020, offset by a decrease of 103 basis points in the average cost of borrowings to 1.21% for the six months ended March 31, 2021 from 2.24% for the six months ended March 31, 2020. Lower market interest rates contributed to the lower average cost of interest-bearing deposits while PPPLF advances contributed to the lower average cost of borrowings.

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

After an evaluation of these factors, management recorded a provision of $1.1 million for the six months ended March 31, 2021 compared to $631,000 for the six months ended March 31, 2020. The increased provisions for loss resulted from higher adjustments to the Company’s historical loan losses due to the prolonged economic impact of the COVID-19 pandemic on the consumer and business loan portfolios. The Company recorded $47,000 in net recoveries during the six months ended March 31, 2021 compared with $6,000 in net recoveries during the six months ended March 31, 2020.

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Significant Accounting Policies – Allowance for Loan Losses.” As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods. In addition, the ongoing effects of the COVID-19 pandemic on our borrowers may also result in larger additions to the allowance for loan losses in future periods.

Other Income. Other income increased $1.4 million, or 177.9%, to $2.2 million during the six months ended March 31, 2021 compared to $778,000 for the six months ended March 31, 2020.

Fees for other customer services increased $768,000 for the six months ended March 31, 2021. The Company received a fee of 3.0% of the Small Business Relief Grant program it assisted Middlesex County with processing. There were no such fees recorded during the six months ended March 31, 2020.

 

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The Company also recorded higher gains from the sales of loans, which were $369,000 for the six months ended March 31, 2021 compared with $26,000 for the six months ended March 31, 2020. Sales of guaranteed portions of SBA 7(a) loans were $3.3 million during the six months ended March 31, 2021 compared with $262,000 for the six months ended March 31, 2020.

Interest rate swap fees increased $208,000 for the six months ended March 31, 2021. The interest rate swap fees reflect the present value of mark-up fees received on back-to-back loan swap transactions. There were no such fees recorded during the six months ended March 31, 2020.

Finally, service charges increased $139,000 to $601,000 for the six months ended March 31, 2021 from $462,000 for the six months ended March 31, 2020 due to higher loan prepayment penalties received between periods.

Other Expenses. Other expenses increased $326,000, or 3.6%, to $9.4 million during the six months ended March 31, 2021 from $9.1 million during the six months ended March 31, 2020.

The increase in other expenses was primarily attributable to professional fees, which increased $225,000, or 28.9%, due to higher legal and consulting fees related to the collection and foreclosure of non-performing loans. OREO expenses increased $66,000, or 49.6%, due to higher valuation allowances recorded during the six months ended March 31, 2021 compared with the prior year period. In addition, loan servicing expenses increased $62,000, or 45.6%, from higher loan origination and repayment activity, and FDIC deposit insurance premium expense increased $40,000, or 18.5%, from our higher assessment base. Partially offsetting these increases were lower data processing, insurance and other expenses.

Income Tax Expense. We recorded tax expense of $1.2 million on pre-tax income of $4.1 million for the six months ended March 31, 2021, compared to $359,000 on pre-tax income of $1.2 million for the six months ended March 31, 2020. The Company’s effective tax rate for the six months ended March 31, 2021 was 30.0% compared with 29.5% for the six months ended March  31, 2020.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

   

statements of our goals, intentions and expectations;

 

   

statements regarding our business plans, prospects, growth and operating strategies;

 

   

statements regarding the quality of our loan and investment portfolios; and

 

   

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

   

conditions relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

 

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general economic conditions, either nationally or in our market areas, that are worse than expected;

 

   

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

 

   

our ability to access cost-effective funding;

 

   

fluctuations in real estate values and both residential and commercial real estate market conditions;

 

   

demand for loans and deposits in our market area;

 

   

our ability to implement and change our business strategies;

 

   

competition among depository and other financial institutions;

 

   

inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

 

   

adverse changes in the securities or secondary mortgage markets;

 

   

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

 

   

changes in the quality or composition of our loan or investment portfolios;

 

   

technological changes that may be more difficult or expensive than expected;

 

   

the inability of third-party providers to perform as expected;

 

   

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

 

   

our ability to manage market risk, credit risk and operational risk;

 

   

our ability to enter new markets successfully and capitalize on growth opportunities;

 

   

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we have acquired or may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

 

   

changes in consumer spending, borrowing and savings habits;

 

   

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

 

   

our ability to retain key employees;

 

   

our compensation expense associated with equity allocated or awarded to our employees; and

 

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changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. See “Risk Factors” beginning on page 17. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

 

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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $27.4 million and $37.6 million.

We intend to use the net proceeds as follows:

 

     Based Upon the Sale at $10.00 Per Share of:  
     2,890,000 Shares     3,400,000 Shares     3,910,000 Shares  
     Amount      Percent of
Net
Proceeds
    Amount      Percent of
Net
Proceeds
    Amount      Percent of
Net
Proceeds
 
     (Dollars in thousands)  

Gross offering proceeds

   $ 28,900        $ 34,000        $ 39,100     

Less: offering expenses

     1,500          1,500          1,535     
  

 

 

      

 

 

      

 

 

    

Net offering proceeds

   $ 27,400        100.0   $ 32,500        100.0   $ 37,565        100.0
  

 

 

      

 

 

      

 

 

    

Distribution of net proceeds:

               

To Magyar Bank

   $ 13,700        50.0   $ 16,250        50.0   $ 18,783        50.0

To fund loan to employee stock ownership plan

   $ 2,312        8.4   $ 2,720        8.4   $ 3,128        8.3

Retained by Magyar Bancorp

   $ 11,388        41.6   $ 13,530        41.6   $ 15,654        41.7

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will reduce Magyar Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if all the shares offered were not sold in the subscription and community offerings and instead a portion of the shares were sold in a syndicated community offering.

Magyar Bancorp may use the proceeds it retains from the offering:

 

   

to invest in securities;

 

   

to repurchase shares of its common stock;

 

   

to pay cash dividends to stockholders;

 

   

to finance the potential acquisition of financial institutions or financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction; and

 

   

for other general corporate purposes.

See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the conversion. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund the granting of restricted stock awards (which would require notification to the Federal Reserve Board) or tax-qualified employee stock benefit plans.

Magyar Bank may use the net proceeds it receives from the offering:

 

   

to fund new loans;

 

   

to enhance existing products and services, hire additional employees and support growth and the development of new products and services;

 

   

to invest in securities;

 

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to expand its banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity; and

 

   

for other general corporate purposes.

Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities. We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval to establish new branches or acquire other financial institutions.

We expect our return on equity may be low until we are able to reinvest effectively the additional capital raised in the offering. Until we can increase our net interest income and non-interest income, our return on equity may be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors – Risks Related to the Offering – Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”

OUR DIVIDEND POLICY

Magyar Bancorp has never paid a dividend. No decision has been made with respect to the amount, if any, and timing of any dividend payments following the completion of the conversion and offering. The board’s determination of whether to declare a dividend and the amount of any such dividend is subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. We cannot assure you that we will pay dividends in the future, or that any such dividends will not be reduced or eliminated in the future.

Magyar Bancorp will not be permitted to pay dividends on its common stock if our stockholders’ equity would be reduced below the amount of the liquidation account established in connection with the conversion. The source of dividends will depend on the net proceeds retained by Magyar Bancorp and earnings thereon, and dividends from Magyar Bank. In addition, Magyar Bancorp will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. In addition, Delaware law generally limits dividends to our capital surplus or, if there is no capital surplus, our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

After the completion of the conversion, Magyar Bank will not be permitted to pay dividends on its capital stock to Magyar Bancorp, its sole stockholder, if Magyar Bank’s stockholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion. In addition, Magyar Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. Under New Jersey law, Magyar Bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair Magyar Bank’s capital stock. In addition, Magyar Bank may not pay a dividend unless it would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively, the payment of the dividend would not reduce the surplus.

Any payment of dividends by Magyar Bank to Magyar Bancorp that would be deemed to be drawn from Magyar Bank’s bad debt reserves established before 1988, if any, would require a payment of taxes at the then-current tax rate by Magyar Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. Magyar Bank does not intend to make any distribution that would create such a federal tax liability.

We will continue to file a consolidated federal tax return with Magyar Bank. Accordingly, it is anticipated that any cash distributions made by us to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes. Additionally, pursuant to Federal Reserve Board during the three-

 

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year period following the conversion, we will not be permitted to make any capital distribution to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

MARKET FOR THE COMMON STOCK

Magyar Bancorp’s common stock is currently listed on the Nasdaq Global Market under the symbol “MGYR.” Upon completion of the conversion, we expect our common stock will continue to trade on the Nasdaq Global Market under the symbol “MGYR.” In order to list our stock on the Nasdaq Global Market, we are required to have at least three broker-dealers who will make a market in our common stock. As of May 3, 2021, Magyar Bancorp had 18 registered market makers in its common stock.

As of the close of business on May 3, 2021, there were 5,810,746 shares of common stock outstanding, including 2,610,296 publicly held shares (shares held by stockholders other than Magyar Bancorp, MHC), and approximately 371 stockholders of record.

On February 25, 2021, the business day immediately preceding the public announcement of the conversion, and on May 3, 2021, the closing prices of Magyar Bancorp common stock as reported on the Nasdaq Global Market were $11.00 per share and $13.35 per share, respectively. On the effective date of the conversion, all publicly held shares of Magyar Bancorp common stock, including shares of common stock held by our officers and directors, will be converted into new shares of Magyar Bancorp pursuant to the exchange ratio. See “The Conversion and Offering – Share Exchange Ratio for Current Stockholders.” See “Beneficial Ownership of Common Stock.”

 

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

At December 31, 2020, Magyar Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of Magyar Bank at December 31, 2020, and the pro forma equity capital and regulatory capital of Magyar Bank after giving effect to the sale of shares of common stock at $10.00 per share. The table also compares historical and pro forma capital levels to those required to be considered “well capitalized.” The table assumes that Magyar Bank receives 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”

 

     Magyar Bank Historical at
December 31, 2020
    Magyar Bank Pro Forma at December 31, 2020 Based Upon the Sale in the
Offering of:
 
    2,890,000 Shares     3,400,000 Shares     3,910,000 Shares  
     Amount      Percent of
Assets
    Amount     Percent of
Assets
    Amount     Percent of
Assets
    Amount     Percent of
Assets
 
     (Dollars in thousands)  

Equity

   $ 58,763        7.92   $ 68,995       9.13   $ 70,933       9.36   $ 72,854       9.58
  

 

 

      

 

 

     

 

 

     

 

 

   

Tier 1 leverage capital (1)(2)

   $ 60,155        8.37   $ 70,387       9.61   $ 72,325       9.84   $ 74,246       10.06

Tier 1 leverage requirement

     35,948        5.00       36,633       5.00       36,760       5.00       36,887       5.00  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

   $ 24,207        3.37   $ 33,754       4.61   $ 35,565       4.84   $ 37,359       5.06
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier 1 risk-based capital (1)(2)

   $ 60,155        11.98   $ 70,387       13.94   $ 72,325       14.31   $ 74,246       14.68

Tier 1 risk-based requirement

     40,169        8.00       40,388       8.00       40,429       8.00       40,469       8.00  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

   $ 19,986        3.98   $ 29,999       5.94   $ 31,896       6.31   $ 33,777       6.68
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total risk-based capital (1)(2)

   $ 66,442        13.23   $ 76,674       15.19   $ 78,612       15.56   $ 80,533       15.92

Total risk-based requirement

     50,211        10.00       50,485       10.00       50,536       10.00       50,587       10.00  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

   $ 16,231        3.23   $ 26,189       5.19   $ 28,076       5.56   $ 29,946       5.92
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common equity tier 1 risk-based capital (1)(2)

   $ 60,155        11.98   $ 70,387       13.94   $ 72,325       14.31   $ 74,246       14.68

Common equity tier 1 risk-based requirement

     32,637        6.50       32,815       6.50       32,849       6.50       32,881       6.50  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

   $ 27,518        5.48   $ 37,572       7.44   $ 39,476       7.81   $ 41,365       8.18
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of capital infused into Magyar Bank:

                 

Net proceeds

        $ 13,700       $ 16,250       $ 18,783    

Less: Common stock acquired by stock-based benefit plans

          (1,156       (1,360       (1,564  

Less: Common stock acquired by employee stock ownership plan

          (2,312       (2,720       (3,128  
       

 

 

     

 

 

     

 

 

   

Pro forma increase

        $ 10,232       $ 12,170       $ 14,091    
       

 

 

     

 

 

     

 

 

   

 

(1)

Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.

(2)

Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

 

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CAPITALIZATION

The following table presents the historical consolidated capitalization of Magyar Bancorp at December 31, 2020 and the pro forma consolidated capitalization of Magyar Bancorp after giving effect to the conversion and offering based upon the assumptions set forth in the “Pro Forma Data” section.

 

     Magyar Bancorp
Historical at
December 31,
2020
    Magyar Bancorp Pro Forma at December 31, 2020 Based upon
the Sale in the Offering at $10.00 per share of:
 
    2,890,000
Shares
    3,400,000
Shares
    3,910,000
Shares
 
     (Dollars in thousands)  

Deposits (1)

   $ 612,064     $ 612,064     $ 612,064     $ 612,064  

Borrowed funds

     60,260       60,260       60,260       60,260  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits and borrowed funds

   $ 672,324     $ 672,324     $ 672,324     $ 672,324  
  

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

        

Preferred stock, $0.01 par value, 500,000 shares authorized (post-conversion) (2)

     —         —         —         —    

Common stock, $0.01 par value, 14,000,000 shares authorized (post-conversion); shares to be issued as reflected (2)(3)

     59       52       62       71  

Additional paid-in capital (2)

     26,279       53,686       58,776       63,832  

MHC capital contribution

     —         10       10       10  

Retained earnings (4)

     34,498       34,498       34,498       34,498  

Accumulated other comprehensive income

     (1,393     (1,393     (1,393     (1,393

Treasury stock, at cost

     (1,242     (1,242     (1,242     (1,242

Common stock held by employee stock ownership plan (5)

     —         (2,312     (2,720     (3,128

Common stock to be acquired by stock-based benefit plans (6)

     —         (1,156     (1,360     (1,564
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

   $ 58,201     $ 82,143     $ 86,631     $ 91,084  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro Forma Shares Outstanding:

        

Shares offered for sale

     —         2,890,000       3,400,000       3,910,000  

Exchange shares issued

     —         2,356,399       2,772,234       3,188,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total shares outstanding

     5,810,746       5,246,399       6,172,234       7,098,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity as a percentage of total assets

     7.85     10.73     11.25     11.76

Tangible equity as a percentage of tangible assets

     7.85     10.73     11.25     11.76

 

(1)

Does not reflect withdrawals from deposit accounts to purchase shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.

(2)

Magyar Bancorp currently has 8,000,000 authorized shares of common stock, $0.01 par value per share, and 1,000,000 authorized shares of preferred stock, par value $0.01 per share. On a pro forma basis, common stock and additional paid-in capital have been revised to reflect the number of shares of Magyar Bancorp common stock to be outstanding.

(3)

No effect has been given to the issuance of additional shares of Magyar Bancorp common stock pursuant to the exercise of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the shares of Magyar Bancorp common stock sold in the offering will be reserved for issuance upon the exercise of options under the plans. See “Management.”

(4)

The retained earnings of Magyar Bank will be substantially restricted after the conversion. See “The Conversion and Offering – Liquidation Rights” and “Supervision and Regulation – Federal Banking Regulation – Capital Distributions.”

(5)

Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Magyar Bancorp. The loan will be repaid principally from Magyar Bank’s contributions to the employee stock ownership plan. Since Magyar Bancorp will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Magyar Bancorp’s consolidated financial statements. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.

(6)

Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such plans to purchase the shares will be provided by Magyar Bancorp. The dollar amount of common stock to be purchased is based on the $10.00 per share purchase price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the purchase price in the offering. Magyar Bancorp will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital in an amount equal to the charge to operations. Implementation of such plans will require stockholder approval.

 

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PRO FORMA DATA

The following tables summarize historical and pro forma data of Magyar Bancorp at and for the quarter ended December 31, 2020 and at and for the year ended September 30, 2020. This information is based on assumptions set forth below and in the tables, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering.

The net proceeds are based upon the following assumptions:

 

  (i)

all of the shares of common stock will be sold in the subscription and community offerings;

 

  (ii)

our employee stock ownership plan will purchase 8% of the shares of common stock sold in the offering with a loan from Magyar Bancorp. The loan will be repaid in substantially equal payments of principal and interest (at the prime rate of interest) over 30 years. Interest income that we earn on the loan will offset the interest paid by Magyar Bank. The effect on earnings for the employee stock ownership plan is the cost of amortizing the loan over 30 years, net of historical expense for the period;

 

  (iii)

we will pay KBW a success fee of approximately $480,000; and

 

  (iv)

total expenses of the offering, other than the success fees and commissions to be paid to KBW and other broker-dealers, will be $1.055 million.

In addition, the expenses of the offering may vary from those estimated, and the fees paid to KBW will vary from the amounts estimated if the amount of shares of Magyar Bancorp common stock sold varies from the amounts assumed above or if any shares are sold in the syndicated community offering.

We calculated pro forma consolidated net income for each period as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 0.36% (0.25% on an after-tax basis). This represents the yield on the five-year U.S. Treasury Note at December 31, 2020, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate federal regulations require that we assume in presenting pro forma data.

We further believe that the reinvestment rate is factually supportable because:

 

   

the yield on the U.S. Treasury Note can be determined and/or estimated from third-party sources; and

 

   

we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest.

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and stockholders’ equity by the indicated number of shares of common stock. For pro forma earnings per share calculations, we adjusted these figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.

The pro forma data gives effect to the implementation of one or more stock-based benefit plans. We have assumed that stock-based benefit plans will reserve for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the offering at the same price for which they were sold in the offering. We have assumed that awards of common stock granted under such plans vest over a five-year period.

We also have assumed that options will be granted under stock-based benefit plans to acquire shares of common stock equal to 10% of the shares of common stock sold in the offering. In preparing the tables below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of

 

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the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $3.17 for each option.

We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the offering and that vest sooner than over a five-year period if the stock-based benefit plans are adopted more than 12 months following the completion of the offering.

As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute 50% of the net proceeds from the offering to Magyar Bank, and we will retain the remainder of the net proceeds from the offering. We will use a portion of the proceeds we retain to fund a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.

The pro forma data does not give effect to:

 

   

withdrawals from deposit accounts to purchase shares of common stock in the offering;

 

   

our results of operations after the offering; or

 

   

changes in the market price of the shares of common stock after the offering.

The following pro forma data may not be representative of the financial effects of the offering at the date on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of Magyar Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering – Liquidation Rights.”

 

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     At or for the Quarter Ended December 31, 2020
Based upon the Sale at $10.00 Per Share of:
 
     2,890,000
Shares
    3,400,000
Shares
    3,910,000
Shares
 
     (Dollars in thousands, except per share amounts)  

Gross proceeds of offering

   $ 28,900     $ 34,000     $ 39,100  

Market value of shares issued in the exchange

     23,564       27,722       31,881  
  

 

 

   

 

 

   

 

 

 

Pro forma market capitalization

   $ 52,464     $ 61,722     $ 70,981  
  

 

 

   

 

 

   

 

 

 

Gross proceeds of offering

   $ 28,900     $ 34,000     $ 39,100  

Expenses

     (1,500     (1,500     (1,535
  

 

 

   

 

 

   

 

 

 

Estimated net proceeds

     27,400       32,500       37,565  

Common stock purchased by employee stock ownership plan

     (2,312     (2,720     (3,128

Common stock purchased by stock-based benefit plans

     (1,156     (1,360     (1,564
  

 

 

   

 

 

   

 

 

 

Estimated net proceeds, as adjusted

   $ 23,932     $ 28,420     $ 32,873  
  

 

 

   

 

 

   

 

 

 

For the Quarter Ended December 31, 2020

      

Consolidated net earnings:

      

Historical

   $ 1,337     $ 1,337     $ 1,337  

Income on adjusted net proceeds

     15       18       21  

Income on mutual holding company asset contribution

     —         —         —    

Employee stock ownership plan (1)

     (14     (16     (18

Stock awards (2)

     (41     (48     (55

Stock options (3)

     (42     (50     (57
  

 

 

   

 

 

   

 

 

 

Pro forma net income

   $ 1,256     $ 1,241     $ 1,227  
  

 

 

   

 

 

   

 

 

 

Earnings per share (4):

      

Historical

   $ 0.27     $ 0.23     $ 0.20  

Income on adjusted net proceeds

     —         —         —    

Income on mutual holding company asset contribution

     —         —         —    

Employee stock ownership plan (1)

     —         —         —    

Stock awards (2)

     (0.01     (0.01     (0.01

Stock options (3)

     (0.01     (0.01     (0.01
  

 

 

   

 

 

   

 

 

 

Pro forma earnings per share (4)

   $ 0.25     $ 0.21     $ 0.18  
  

 

 

   

 

 

   

 

 

 

Offering price to pro forma net earnings per share

     10.00     11.90     13.89

Number of shares used in earnings per share calculations

     5,017,126       5,902,501       6,787,877  

At December 31, 2020

      

Stockholders’ equity:

      

Historical

   $ 58,201     $ 58,201     $ 58,201  

Estimated net proceeds

     27,400       32,500       37,565  

Equity increase from mutual holding company

     10       10       10  

Common stock acquired by employee stock ownership plan (1)

     (2,312     (2,720     (3,128

Common stock acquired by stock-based benefit plans (2)

     (1,156     (1,360     (1,564
  

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity (5)

   $ 82,143     $ 86,631     $ 91,084  
  

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity (5)

   $ 82,143     $ 86,631     $ 91,084  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity per share (6):

      

Historical combined

   $ 11.10     $ 9.43     $ 8.19  

Estimated net proceeds

     5.22       5.27       5.29  

Equity increase from mutual holding company

     —         —         0.01  

Common stock acquired by employee stock ownership plan (1)

     (0.44     (0.44     (0.44

Common stock acquired by stock-based benefit plans (2)

     (0.22     (0.22     (0.22
  

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity per share (5) (6)

   $ 15.66     $ 14.04     $ 12.83  
  

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity per share (5) (6)

   $ 15.66     $ 14.04     $ 12.83  
  

 

 

   

 

 

   

 

 

 

Offering price as percentage of pro forma stockholders’ equity per share

     63.86     71.23     77.94

Offering price as percentage of pro forma tangible stockholders’ equity per share

     63.86     71.23     77.94

Number of shares outstanding for pro forma book value per share calculations

     5,246,399       6,172,234       7,098,070  

 

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     At or for the Year Ended September 30, 2020
Based upon the Sale at $10.00 Per Share of:
 
     2,890,000
Shares
    3,400,000
Shares
    3,910,000
Shares
 
     (Dollars in thousands, except per share amounts)  

Gross proceeds of offering

   $ 28,900     $ 34,000     $ 39,100  

Market value of shares issued in the exchange

     23,564       27,722       31,881  
  

 

 

   

 

 

   

 

 

 

Pro forma market capitalization

   $ 52,464     $ 61,722     $ 70,981  
  

 

 

   

 

 

   

 

 

 

Gross proceeds of offering

   $ 28,900     $ 34,000     $ 39,100  

Expenses

     (1,500     (1,500     (1,535
  

 

 

   

 

 

   

 

 

 

Estimated net proceeds

     27,400       32,500       37,565  

Common stock purchased by employee stock ownership plan

     (2,312     (2,720     (3,128

Common stock purchased by stock-based benefit plans

     (1,156     (1,360     (1,564
  

 

 

   

 

 

   

 

 

 

Estimated net proceeds, as adjusted

   $ 23,932     $ 28,420     $ 32,873  
  

 

 

   

 

 

   

 

 

 

For the Year Ended September 30, 2020

      

Consolidated net earnings:

      

Historical

   $ 2,190     $ 2,190     $ 2,190  

Income on adjusted net proceeds

     61       72       83  

Income on mutual holding company asset contribution

     —         —         —    

Employee stock ownership plan (1)

     (54     (64     (74

Stock awards (2)

     (163     (192     (221

Stock options (3)

     (170     (200     (230
  

 

 

   

 

 

   

 

 

 

Pro forma net income

   $ 1,864     $ 1,807     $ 1,750  
  

 

 

   

 

 

   

 

 

 

Earnings per share (4):

      

Historical

   $ 0.43     $ 0.37     $ 0.32  

Income on adjusted net proceeds

     0.01       0.01       0.01  

Income on mutual holding company asset contribution

     —         —         —    

Employee stock ownership plan (1)

     (0.01     (0.01     (0.01

Stock awards (2)

     (0.03     (0.03     (0.03

Stock options (3)

     (0.03     (0.03     (0.03
  

 

 

   

 

 

   

 

 

 

Pro forma earnings per share (4)

   $ 0.37     $ 0.31     $ 0.26  
  

 

 

   

 

 

   

 

 

 

Offering price to pro forma net earnings per share

     27.03     32.26     38.46

Number of shares used in earnings per share calculations

     5,022,906       5,909,301       6,795,697  

At September 30, 2020

      

Stockholders’ equity:

      

Historical

   $ 56,850     $ 56,850     $ 56,850  

Estimated net proceeds

     27,400       32,500       37,565  

Equity increase from mutual holding company

     10       10       10  

Common stock acquired by employee stock ownership plan (1)

     (2,312     (2,720     (3,128

Common stock acquired by stock-based benefit plans (2)

     (1,156     (1,360     (1,564
  

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity (5)

   $ 80,792     $ 85,280     $ 89,733  
  

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity (5)

   $ 80,792     $ 85,280     $ 89,733  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity per share (6):

      

Historical combined

   $ (19.96   $ (18.43   $ (17.27

Estimated net proceeds

     5.22       5.27       5.29  

Equity increase from mutual holding company

     —         —         —    

Common stock acquired by employee stock ownership plan (1)

     (0.44     (0.44     (0.44

Common stock acquired by stock-based benefit plans (2)

     (0.22     (0.22     (0.22
  

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity per share (5) (6)

   $ 15.40     $ 13.82     $ 12.64  
  

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity per share (5) (6)

   $ 15.40     $ 13.82     $ 12.64  
  

 

 

   

 

 

   

 

 

 

Offering price as percentage of pro forma stockholders’ equity per share

     64.94     72.36     79.11

Offering price as percentage of pro forma tangible stockholders’ equity per share

     64.94     72.36     79.11

Number of shares outstanding for pro forma book value per share calculations

     5,246,399       6,172,234       7,098,070  

 

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(1)

Assumes that 8% of the shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of these tables, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Magyar Bancorp. Magyar Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Magyar Bank’s total annual payments on the employee stock ownership plan debt are based upon 30 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation—Stock Compensation—Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Magyar Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 29.5%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 1,927, 2,267 and 2,607 shares were committed to be released during the quarter ended December 31, 2020 at the minimum, midpoint and maximum of the offering range, respectively, 7,707, 9,067 and 10,427 shares were committed to be released during the year ended September 30, 2020 at the minimum, midpoint and maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for net income per share calculations.

(2)

Assumes that one or more stock-based benefit plans reserve an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Stockholder approval of the plans and purchases by the plans may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Magyar Bancorp or through open market purchases. Shares in the stock-based benefit plans are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by Magyar Bancorp. The tables assume that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 5% of the amount contributed to the plan is amortized as an expense during the quarter ended December 31, 2020 (iii) 20% of the amount contributed to the plan is amortized as an expense during the year ended September 30, 2020, and (iv) the plan expense reflects an effective combined federal and state tax rate of 29.5%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 2.16%.

(3)

Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering. Stockholder approval of the plans may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were both $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $3.17 for each option and that the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options using an effective combined federal and state tax rate of 29.5%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will result in no additional shares under the treasury stock method for calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 5.22%.

(4)

Per share figures include publicly held shares of Magyar Bancorp common stock that will be issued in exchange for shares of Magyar Bancorp common stock in the conversion. See “The Conversion and Offering – Share Exchange Ratio for Current Stockholders.” Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and the number of new shares assumed to be issued in exchange for publicly held shares and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares that have not been committed for release during the period. See footnote 2, above. The number of shares of common stock actually sold and the corresponding number of exchange shares may be more or less than the assumed amounts.

(5)

The retained earnings of Magyar Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering – Liquidation Rights” and “Supervision and Regulation.”

(6)

Per share figures include publicly held shares of Magyar Bancorp common stock that will be issued in exchange for shares of Magyar Bancorp common stock in the conversion. Stockholders’ equity per share calculations are based upon the sum of (i) the number of shares assumed to be sold in the offering and (ii) shares to be issued in exchange for publicly held shares at the minimum, midpoint and maximum of the offering range, respectively. The exchange shares reflect an exchange ratio of 0.9027, 1.0620 and 1.2213 at the minimum, midpoint and maximum of the offering range, respectively. The number of shares actually sold, and the corresponding number of exchange shares may be more or less than the assumed amounts.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information at and for the fiscal years ended September 30, 2020 and 2019 is derived in part from the audited consolidated financial statements that appear elsewhere in this prospectus. The information at and for the quarters ended December 31, 2020 and 2019 is unaudited. You should read the information in this section in conjunction with the other business and financial information contained in this prospectus, including the consolidated financial statements and related notes of Magyar Bancorp provided elsewhere in this prospectus.

Overview

Magyar Bancorp is a Delaware-chartered stock holding company whose most significant business activity is ownership of 100% of the common stock of Magyar Bank. We are currently a mid-tier holding company with 55.1% of our common stock owned by Magyar Bancorp, MHC and the remaining 44.9% of our common stock owned by public stockholders. Upon consummation of the conversion and offering, Magyar Bancorp, MHC will cease to exist and 100% of our common stock will be owned by public stockholders and we will continue to own 100% of the common stock of Magyar Bank.

Magyar Bank’s principal business is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations, principal repayments on loans and securities and borrowed funds, into one-to four-family residential mortgage loans, multifamily and commercial real estate mortgage loans, home equity loans and lines of credit, commercial business loans and construction loans. Our results of operations depend primarily on our net interest income which is the difference between the interest we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our net interest income is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, the timing of the placement of interest-earning assets and interest-bearing liabilities, and the prepayment rate on our mortgage-related assets. Other factors that may affect our results of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

At December 31, 2020, we had total assets of $741.8 million, $598.5 million of net loans, $52.1 million of cash and cash equivalents, total deposits of $612.1 million and total stockholders’ equity of $58.2 million.

We had net income of $1.3 million for the quarter ended December 31, 2020. Net income decreased $806,000, or 26.9%, to $2.2 million for the year ended September 30, 2020 compared with net income of $3.0 million for the year ended September 30, 2019. The decrease in net income between the twelve-month periods was primarily attributable to higher provisions for loan losses, which increased $998,000 and lower other non-interest income, which decreased $420,000, both of which were primarily attributable to the COVID-19 pandemic.

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

Impact of COVID-19 Outbreak

The extraordinary impact of the COVID-19 pandemic has created an unprecedented environment for consumers and businesses alike. To protect our employees and customers from potential exposure to the virus, all Magyar Bank lobbies continue to observe best practice protocols to limit exposure and/or spread of the virus.

To assist our loan customers, Magyar Bank has offered loan payment deferrals to borrowers unable to make their contractual payments due to COVID-19. Deferral requests are considered on a case-by-case basis and are initially approved for a three-month period for principal and interest payments or for interest-only payments depending on the borrower’s circumstances. An additional three-month period is available for businesses that remain unable to operate and for consumers unable to make their mortgage or home equity payments due to COVID-19. Additional deferrals will be considered for businesses experiencing a prolonged impact from the COVID-19 pandemic, such as the accommodation and food service industries. At December 31, 2020, Magyar Bank had 33

 

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loans totaling $23.2 million to businesses in the accommodations and food services industries. Magyar Bank’s loan portfolio does not have a significant exposure to the travel or entertainment industry.

Through December 31, 2020, we had modified 284 loans aggregating $150.9 million for the deferral of principal and/or interest payments. Of these loans, at December 31, 2020, 258 loans aggregating $134.9 million had resumed making their contractual loan payments, 15 loans totaling $7.2 million had paid off (including their deferred payments), nine loans totaling $7.3 million were currently deferred, and two loans totaling $1.5 million were past their deferral period and delinquent. Of the two delinquent loans, one commercial business loan totaling $1.4 million was delinquent more than 90 days at December 31, 2020 and one residential loan totaling $113,000 was delinquent 30 days at December 31, 2020. Details with respect to loan modifications as of December 31, 2020 are as follows:

 

Loan Type

   Number of
Loans
     Balance      Weighted Average
Interest Rate
 
     (Dollars in thousands)  

One- to four-family residential real estate (1)

     89      $ 23,184        4.06

Commercial real estate

     139        109,953        4.72

Construction

     4        2,630        3.77

Home equity lines of credit

     8        1,238        4.24

Commercial business

     29        6,738        4.06
  

 

 

    

 

 

    

 

 

 

Total

     269      $ 143,743        4.56
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes home equity loans.

Magyar Bank participated in the PPP to provide liquidity using the SBA platform to small businesses and self-employed individuals to maintain their staff and operations through the COVID-19 pandemic. This liquidity is in the form of a loan, 100% guaranteed by the SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0% and loan payments are deferred for the first 10 months following the covered period, which is eight to twenty-four weeks following the date the loan is made. We originated 350 “First Draw” loans totaling $56.0 million through December 31, 2020 for which we received $2.0 million in origination fees from the SBA. These fees are being amortized over the expected life of the loans, which is two years for loans originated prior to June 4, 2020 and five years for loans originated June 5, 2020 or later. Through December 31, 2020, 48 loans totaling $10.0 million had been forgiven by the SBA.

On December 27, 2020 the Economic Aid Act was signed into law. The Economic Aid Act allocated an additional $284.5 billion in funds for the PPP, expanded the eligible expenditures for which a business could use PPP proceeds, and provided for a simplified forgiveness application for PPP loans of $150,000 or less. The Economic Aid Act also provided the SBA with the authority to guarantee Second Draw PPP loans, under generally the same terms and conditions available under the First Draw program, through March 31, 2021. In order to qualify for a Second Draw PPP loan, an applicant must have experienced a revenue reduction of at least 25% in 2020 relative to 2019. We are participating in the second round of PPP and expect to provide Second Draw PPP loans to our eligible customers.

The Federal Reserve Board created the PPPLF to facilitate lending by eligible financial institutions to small businesses under the PPP. Under the PPPLF, the Federal Reserve Bank of New York provided advances with a fixed interest rate of 0.35% to Magyar Bank on a non-recourse basis, taking PPP loans as collateral. In addition, the FDIC allows Magyar Bank to neutralize the effect of PPP loans financed under the PPPLF on Tier 1 leverage capital ratios. The Bank funded its PPP loans with $36.9 million in PPPLF, $29.8 million of which was outstanding at December 31, 2020.

The health of the banking industry is highly correlated with that of the economy. The temporary and/or partial closures of non-essential businesses in our local and national economies increases the likelihood of recession, which typically results in an increased level of credit losses. Accordingly, our provisions for loan losses have increased and will be closely monitored throughout the pandemic. In addition to utilizing quantitative loss factors, we consider qualitative factors, such as changes in underwriting policies, current economic conditions, delinquency statistics, the adequacy of the underlying collateral, and the financial strength of the borrower. The impact of the

 

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COVID-19 pandemic on the performance of our loan portfolio in future quarters is unknown, however all of these factors are likely to be affected by the COVID-19 pandemic.

Business Strategy

Our current business strategy consists of the following:

 

   

Continue to grow our loan portfolio prudently and further diversify our loan portfolio. Our loan portfolio has increased to $607.0 million at December 31, 2020 compared to $523.0 million at September 30, 2019 and $512.5 million at September 30, 2018. In recent years, consistent with our business strategy, our biggest areas of loan growth have been in commercial real estate, which increased $41.0 million, or 18.7%, from September 30, 2018 to December 31, 2020, and in commercial business loans, which increased $37.9 million, or 71.1%, from September 30, 2018 to December 31, 2020. Included in the December 31, 2020 balance of commercial business loans was $46.0 million of loans originated through the PPP. We intend to continue to grow our loan portfolio, with a focus primarily on commercial real estate and to a lesser extent commercial business lending. Although we will continue to emphasize the origination of one- to four-family residential mortgage loans, we expect our continued emphasis on commercial real estate and commercial business lending will result in the continued diversification of our loan portfolio with a lower concentration in one- to four-family residential real estate loans.

 

   

Continue to support our customers and our local community. During the COVID-19 pandemic, as we have done during prior economic downturns, we are taking actions to support our customers and our local communities. For example, during the year ended September 30, 2020, we originated $56.0 million of small business loans under the PPP, created by the CARES Act, which was signed into law in March 2020. As a result of our participation in the PPP, in addition to the loans originated, at December 31, 2020, we had 114 new business customers through the PPP with an aggregate balance of $14.0 million in core deposits and we believe we will retain a significant number of these customers. Furthermore, in response to the COVID-19 pandemic, we have implemented protocols and processes to help protect our employees, customers and communities, including leveraging our business continuity plans and capabilities that include critical operations teams being divided and dispersed to separate locations and, when possible, having employees work from home, while remaining open in all branch locations. In addition, we participated in the Federal Home Loan Bank of New York’s Covid-19 Small Business Recovery Grant Program and distributed $100,000 to local business and non-profits in our community. Our commitment to the communities we serve has resulted in Magyar Bank receiving rating of “Outstanding” from the FDIC for our compliance with the Community Reinvestment Act on five consecutive examinations by the FDIC. An “Outstanding” rating is considered a benchmark for a bank’s level of care and concern for the communities it serves. Additionally, each year we support over 100 organizations through corporate donations and employees volunteering their time. Prior to the COVID-19 pandemic, our employees frequently attended events around the community, from serving meals at local soup kitchens, to providing financial education seminars and preparing first-time homebuyers in achieving homeownership. We still engage in these types of activities in a virtual format, and once the restrictions are lifted, we expect to continue to be an active civic leader in our communities through these types of engagements.

 

   

Focus on Technological Innovation. In recent years, we have increased our focus on utilizing technology to provide our customers with the most convenient and secure delivery platforms as well as improving our efficiency. We believe that recent technological improvements to our online banking and mobile application services were a critical element in allowing our customers to migrate to these delivery channels during the COVID-19 pandemic, and enabling them to safely conduct most of their banking transactions remotely. Our mobile applications allow customers to make deposits with their phones, as well as providing remote capture deposit functions for our business customers. Additionally, the addition of the Zelle online person-to-person payment feature has facilitated our customers’ ability to pay their friends and family members through a secure virtual platform. We intend to continue to utilize technology to improve our customers’

 

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banking experience and improve our efficiency. Looking ahead, technological improvements we are researching include cash recyclers for branches to reduce the time it takes to complete transactions in the branch, an online deposit application that would allow customers to open accounts remotely, and a mobile application for business accounts. We believe that our current and prospective technological enhancements will not only improve our customers’ banking experience but also will improve our efficiency and thereby ultimately reduce operating expenses.

 

   

Continue to grow our core deposits. We consider our core deposits to include demand accounts, savings accounts, negotiable orders of withdrawal (NOW) and money market accounts. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits also help us maintain loan-to-deposit ratios at levels consistent with regulatory expectations. Such deposits totaled $493.3 million, or 80.6% of total deposits, as of December 31, 2020, compared to $399.8 million, or 75.4% of total deposits, as of September 30, 2018. Core deposits have also increased as we have held the proceeds of PPP loans originated to customers and deposited with Magyar Bank, including $14.0 million of deposits from 114 new customers of Magyar Bank at December 31, 2020 as a result of the PPP. While we expect some of these deposits to decrease as businesses utilize the PPP loan proceeds, we will focus on retaining as many of these new customer relationships as possible. We intend to continue to emphasize the aggregation of core deposits by incentivizing lenders to increase loan customer deposits and continuing to provide innovative products to our customers.

 

   

Continue to manage credit risk to maintain a low level of non-performing assets. We believe strong asset quality remains a key to our long-term financial success and is important in supporting our intended loan growth. Managing credit risk also reduces the provisions we require to maintain our allowance for loan losses, which enables us to use additional funds to support sales and marketing initiatives as well as invest in information technology systems customarily associated with a larger financial institution. Our total non-performing assets to total assets ratio was 1.63% at December 31, 2020 and 2.29% at September 30, 2019. Our strategy for credit risk management continues to focus on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. This includes enhanced loan monitoring of higher risk portfolio segments, higher risk individual loans and larger relationships within the portfolio, and more frequent loan grade review. We will also continue more frequent communication with large borrowers and borrowers within pandemic-affected segments, such as the hospitality and restaurant industries, and we will further continue obtaining interim financial statements, when available, and monitoring past due loans, as well as loans that were deferred as a result of COVID-19 hardships and that are required to resume normal monthly payments. Furthermore, given the uncertainty surrounding the length and severity of the COVID-19 pandemic, management has established and will continue to use enhanced underwriting criteria for all loan types, with a particular focus on portfolio segments identified as having elevated risk.

Summary of Significant Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The following represent our significant accounting policies:

 

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Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses in the loan portfolio both probable and reasonably estimable at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has i