Magyar Bancorp, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the three months ended December 31, 2023; income and cash-flow comparisons are against the three months ended December 31, 2022. Balance-sheet comparisons are against September 30, 2023. Amounts are in millions unless stated otherwise.
Financial performance and condition
| Metric | Period-end / current quarter | Comparison |
|---|---|---|
| Interest and dividend income | $11.6 | $8.5 a year earlier |
| Net interest and dividend income | $7.2 | Up 5.1% year over year |
| Net interest margin | 3.29% | 3.60% a year earlier |
| Provision for credit losses | $0.481 | $0.317 a year earlier, including $0.097 for commitments this quarter |
| Net income / diluted EPS | $1.652 / $0.26 | $1.810 / $0.28 a year earlier |
| Total assets | $916.7 | Up 1.0% from September 30, 2023 |
| Total loans | $729.5 | Up $31.3, or 4.5%, from September 30 |
| Deposits | $763.5 | Up $8.1, or 1.1%, from September 30 |
| Borrowings | $28.8 | Down $0.7 from September 30 |
| Cash and cash equivalents | $51.1 | Down $21.4 from September 30 |
| Stockholders’ equity | $106.5 | Up 1.7%; book value per share was $16.01 |
Net interest income benefited from higher earning-asset balances and yields, but deposit and borrowing costs rose faster, reducing margin. Interest expense increased 167.9% year over year to $4.3 million. Other expenses rose 9.6% to $5.0 million; pretax income was $2.4 million and the effective tax rate was 29.8%.
Operating cash flow was $3.2 million, versus $1.3 million a year earlier. Investing activities used $31.3 million, principally reflecting $31.9 million of net loan growth; financing activities provided $6.7 million. Cash and cash equivalents decreased $21.4 million during the quarter.
Material changes and credit quality
- Loan growth was concentrated in commercial real estate, up $18.2 million, and construction, up $12.8 million. Commercial business loans declined $3.1 million.
- Nonperforming loans declined to $4.9 million from $5.1 million; the ratio to total loans improved to 0.66% from 0.73%. Loans 90 days or more past due totaled $4.9 million.
- The on-balance-sheet allowance for credit losses was $7.7 million, or 1.14% of loans, compared with $8.3 million, or 1.19%, at September 30. The reserve for off-balance-sheet commitments was $0.637 million.
- The company adopted CECL (ASU 2016-13) on October 1, 2023. The filing describes a $492,000 pre-tax cumulative reduction to retained earnings, or $346,000 net of tax, while the equity statement shows a $354,000 adoption-related increase. The filing text does not reconcile these net-of-tax figures.
- Available-for-sale securities had $1.420 million of gross unrealized losses; held-to-maturity securities had $8.836 million of gross unrealized losses and a disclosed fair value of $75.5 million versus $84.3 million amortized cost. Management attributed losses primarily to interest rates, said it did not intend to sell and did not expect to be required to sell before recovery, and recorded no securities credit-loss allowance.
Liquidity, capital, outlook, and risks
Management reported no material adverse change in the company’s ability to fund operations. At quarter-end, borrowing capacity at the Federal Home Loan Bank of New York was $122.9 million, subject to eligible pledged collateral. Bank Tier 1 capital was 10.81% of total assets; total qualifying capital was 15.81% of risk-weighted assets.
Deposits included $13.8 million of brokered certificates of deposit. Deposits exceeding the $250,000 insurance limit totaled $456.7 million; estimated deposits neither insured nor collateralized were $120.2 million. Customer credit commitments totaled $117.0 million, including $95.3 million of unused lines, $20.6 million of loan commitments and $1.1 million of letters of credit.
The filing provides no specific earnings or financial guidance. Management cited exposure to economic and interest-rate changes, competition, regulatory and technology risks, and New Jersey real-estate values and lending conditions. Non-owner-occupied commercial real estate loans were approximately 267% of total risk-based capital. Management noted that the portfolio is monitored and stress-tested. It expects possible future allowance increases if credit quality, collateral values or economic conditions deteriorate. Routine litigation was not expected to have a material adverse effect; no material risk-factor changes were reported. A $60,000 gain on sale of land and higher expenses, including fraud-check losses, were among the quarter’s unusual items.
The company paid a $0.11-per-share dividend and repurchased 19,232 shares for $192,000 during the quarter. Its buyback plan had 217,084 shares remaining authorized at December 31.
Important facts for investors to verify
- Reconcile the CECL adoption adjustment: the note reports $346,000 net of tax, whereas the equity statement reports $354,000.
- Track commercial real-estate and construction loan growth, criticized and nonperforming exposures, and any change in the $4.9 million of nonperforming loans.
- Monitor deposit mix, funding costs, uninsured or uncollateralized deposits, and continued access to contingent borrowing capacity.
- Assess whether asset yields can keep pace with deposit costs and stabilize the 3.29% net interest margin.
- Review the fair-value gap on held-to-maturity securities and management’s ability and intent to hold them through recovery.