Form 10-QSB
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
ý
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended December 31, 2006
Commission
File Number 000-51726
MAGYAR
BANCORP, INC.
(Exact
name of small business issuer as specified in its charter)
|
Delaware
|
|
20-4154978
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
|
Identification
Number)
|
| |
|
|
|
400
Somerset Street
|
|
|
|
New
Brunswick, New Jersey
|
|
08901
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Issuer's
telephone number, including area code (732) 342-7600
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
State
the
number of shares outstanding of each of the issuer's classes of common stock,
as
of the latest practicable date.
|
Class
|
Outstanding
at February 8, 2007
|
|
Common
Stock, $0.01 Par Value
|
5,923,742
|
Transitional
Small Business Disclosure Format YES o
NO ý
EXPLANATORY
NOTE
The
purpose of this Amendment No. 1 to the Company’s Quarterly Report on Form 10-QSB
for the period ended December 31, 2006, is to re-file Item 2, Part I -
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. The average balance sheet and related information previously filed
reflected actual, not average, balances. The average balance sheet information
and related information is included in this Amendment No. 1.
These
changes had no effect on the Company’s consolidated statements of income,
consolidated balance sheets, consolidated statement of changes in stockholders’
equity, consolidated statements of cash flows, or the notes thereto.
Item
2.
Management's Discussion and Analysis or Plan of Operation
Forward-Looking
Statements
When
used
in this filing and in future filings by Magyar Bancorp, Inc. with the Securities
and Exchange Commission, in the Company’s press releases or other public or
shareholder communications, or in oral statements made with the approval of
an
authorized executive officer, the words or phrases, “anticipate,” “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimated,” “projected,” or similar expressions
are intended to identify “forward looking statements.” Such statements are
subject to risks and uncertainties, including but not limited to changes in
economic conditions in Magyar Bancorp, Inc.’s market area, changes in policies
by regulatory agencies, fluctuations in interest rates, demand for loans in
Magyar Bancorp, Inc.’s market area, changes in the position of banking
regulators on the adequacy of our allowance for loan losses, and competition,
all or some of which could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.
Magyar
Bancorp, Inc. wishes to caution readers not to place undue reliance on any
such
forward-looking statements, which speak only as of the date made, and advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit
and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect Magyar Bancorp, Inc.’s financial performance and could
cause Magyar Bancorp, Inc.’s actual results for future periods to differ
materially from those anticipated or projected.
Magyar
Bancorp, Inc. does not undertake, and specifically disclaims any obligation,
to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Critical
Accounting Policies
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and could potentially result in materially
different results under different assumptions and conditions. We believe that
the most critical accounting policy upon which our financial condition and
results of operations depend, and which involves the most complex subjective
decisions or assessments, is the 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 identified
this
policy as one of our most critical. The methodology for determining the
allowance for loan losses is considered a critical accounting policy by
management due to the high degree of judgment involved, the subjectivity of
the
assumptions utilized and the potential for changes in the economic environment
that could result in changes to the amount of the recorded allowance for loan
losses.
As
a
substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans and discounted
cash flow valuations of properties are critical in determining the amount of
the
allowance required for specific loans. Assumptions for appraisals and discounted
cash flow valuations are instrumental in determining the value of properties.
Overly optimistic assumptions or negative changes to assumptions could
significantly affect the valuation of a
property
securing a loan and the related allowance. The assumptions supporting such
appraisals and discounted cash flow valuations are carefully reviewed by
management to determine that the resulting values reasonably reflect amounts
realizable on the related loans.
Management
performs a quarterly evaluation of the adequacy of the allowance for loan
losses. We consider a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates by management that may be
susceptible to significant change based on changes in economic and real estate
market conditions.
The
evaluation has a specific and general component. The specific component relates
to loans that are delinquent or otherwise identified as a problem loan through
the application of our loan review process and our loan grading system. All
such
loans are evaluated individually, with principal consideration given to the
value of the collateral securing the loan and discounted cash flows. Specific
allowances are established as required by this analysis. The general component
is determined by segregating the remaining loans by type of loan, risk weighting
(if applicable) and payment history. We also analyze historical loss experience,
delinquency trends, general economic conditions and geographic and industry
concentrations. This analysis establishes factors that are applied to the loan
groups to determine the amount of the general component of the allowance for
loan losses.
Actual
loan losses may be significantly more than the allowances we have established
which could have a material negative effect on our financial
results.
Comparison
of Financial Condition at December 31, 2006 and September 30,
2006
Total
assets increased $14.9 million, or 3.4%, to $449.1 million at December 31,
2006
from $434.2 million at September 30, 2006, represented by significant growth
in
net loans receivable, partially offset by a decrease in securities
available-for-sale and securities held-to-maturity.
Net
loans
receivable increased $17.3 million, or 5.0%, to $365.2 million at December
31,
2006 from $348.0 million at September 30, 2006. The increase in loans receivable
for the three-month period was slightly offset by $200,000 in sales of
one-to-four family residential mortgage loans and provisions for loan loss
of
$167,000. During the three months ended December 31, 2006, commercial business
loans led the increase in net loans receivable with growth of $6.7 million,
or
27.2%, to $31.2 million from $24.5 million at September 30, 2006. Construction
loans increased $5.3 million, or 5.8%, and home equity lines of credit increased
$3.5 million, or 32.1%, during the period to $95.6 million and $14.3
million, respectively.
At
December 31, 2006, the significant loan categories in terms of the percent
of
total loans were 38.7% in one-to-four family residential mortgage loans, 25.9%
in construction loans and 18.7% in commercial real estate loans. At December
31,
2005 these categories in terms of the percent of total loans were 43.3% in
one-to-four family residential mortgage loans, 22.8% in construction loans
and
19.6% in commercial real estate loans. Throughout 2007 we expect to continue
with our strategy of diversifying the Company’s balance sheet with higher
concentrations in commercial and construction loans.
Total
non-performing loans decreased by $94,000 to $7.3 million at December 31, 2006
from $7.4 million at September 30, 2006. The ratio of non-performing loans
to
total loans receivable was
1.98%
at
December 31, 2006 compared with 2.10% at September 30, 2006. The allowance
for
loan losses was increased $167,000 to $4.1 million or 55.6% of
non-performing loans at December 31, 2006 compared with $3.9 million or
52.6% of non-performing loans at September 30, 2006. The allowance for loan
losses was 1.1% of gross loans outstanding at both December 31, 2006 and
September 30, 2006.
The
Bank’s interest in loans on the Dwek Properties and Sugar Maple Estates
(reported in the Company’s Current Report on Form 8-K dated June 27, 2006) was
$745,000 and $4.2 million, respectively, at December 31, 2006. Payments on
both
loans were current at December 31, 2006. An “as-is condition” contract of sale
in the amount of $1.46 million was approved by the superior court for the sale
of property securing the Dwek Properties loan. The sale and closing are
currently scheduled to occur in February 2007. The Sugar Maple Estates property
is currently listed for sale through the court appointed sale
agent.
In
October 2006, Kara Homes, Inc. (“Kara Homes”), one of our largest construction
loan borrowers, filed for Chapter 11 bankruptcy (reported in our Current Report
on Form 8-K dated October 10, 2006). Kara Homes' lending relationship with
us
consists of four construction loans with a total outstanding balance of $7.6
million. Two of the four loans were participated with other banks, limiting
our
total lending relationship with Kara Homes to $5.1 million. The loans were
designated non-accrual at September 30, 2006 and remained on that status at
December 31, 2006. On January 8, 2007 the Bankruptcy Court approved a motion
to
begin a bidding process through the Bankruptcy Court for all four Kara Homes
properties. An auction is expected to be held in the Bankruptcy Court during
the
Company’s second quarter to sell the four projects. The Bank has made an initial
offer on each of the four projects to proceed with a Bankruptcy Code Section
363
sale of the property to the Bank (free and clear of all liens, claims and
encumbrances with the exception of real estate taxes.)
Although
management believes that the Bank’s position in the Dwek Properties, Sugar Maple
Estates, and Kara Homes, Inc. loans are well collateralized, there can be no
assurance that losses will not occur or that significant additional expenses
will not be incurred in the process of the resolution of the loans.
Securities
available-for-sale decreased $0.9 million, or 4.6%, to $17.3 million at December
31, 2006 from $18.2 million at September 30, 2006. The decrease was the result
of $142,000 in sales of a money market mutual fund and $730,000 in principal
amortization. In addition, securities held-to-maturity decreased $1.1 million,
or 4.6%, to $22.8 million at December 31, 2006 from $23.9 million at September
30, 2006, resulting from principal amortization. The decrease in the
available-for-sale and held-to-maturity securities reflected the deployment
of
investment proceeds into new higher-yielding construction and commercial
loans.
Total
deposits increased $16.7 million, or 5.1%, to $342.3 million at December 31,
2006. The increase was primarily the result of money market accounts, which
increased $9.2 million, or 16.5%, to $65.3 million at December 31, 2006 from
$56.1 million at September 30, 2006, and certificate of deposit accounts, which
increased $6.6 million, or 4.4%, to $156.4 million at December 31, 2006 from
$149.8 million at September 30, 2006. Other significant changes in total
deposits over the three-month period included an increase in NOW accounts of
$2.1 million, or 6.8%, to $32.6 million and a decrease in savings accounts
of
$3.4 million, or 7.9%, to $39.7 million.
Borrowings
from the Federal Home Loan Bank of New York decreased $1.9 million, or 3.9%
to
$51.1 million at December 31, 2006 from $53.0 million at September 30, 2006.
Proceeds from the growth in deposits described above were used to pay down
short-term advances over the three-month period.
Stockholders’
equity increased $350,000, or 0.7%, to $48.6 million at December 31, 2006 from
$48.2 million at September 30, 2006. The increase was attributable to net income
during the period of $272,000, the release of shares from the ESOP totaling
$73,000 and a decrease in accumulated other comprehensive loss of $5,000. The
other comprehensive losses due to unrealized losses on investment securities
available-for-sale related to increases in interest rates since the investment
securities were purchased. Management has concluded that none of the securities
have impairments that are considered other than temporary.
Average
Balance Sheets for the Three Months Ended December 31, 2006 and
2005
The
table
on the following page presents certain information regarding Magyar Bancorp,
Inc.’s financial condition and net interest income for the three months ended
December 31, 2006 and 2005. The table presents the annualized average yield
on
interest-earning assets and the annualized average cost of interest-bearing
liabilities. We derived the yields and costs by dividing annualized income
or
expense by the average balance of interest-earning assets and interest-bearing
liabilities, respectively, for the periods shown. We derived average balances
from daily balances over the periods indicated. Interest income includes fees
that we consider adjustments to yields.
| |
|
Three
Months Ended December 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Yield/
Cost
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Yield/
Cost
|
|
| |
|
(Dollars
in thousands)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
deposits
|
|
$
|
233
|
|
$
|
3
|
|
|
5.11
|
%
|
$
|
1,190
|
|
$
|
8
|
|
|
2.67
|
%
|
|
Loans
receivable, net
|
|
|
357,138
|
|
|
6,517
|
|
|
7.24
|
%
|
|
277,681
|
|
|
4,575
|
|
|
6.54
|
%
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
39,301
|
|
|
416
|
|
|
4.20
|
%
|
|
50,269
|
|
|
500
|
|
|
3.95
|
%
|
|
Tax-exempt
|
|
|
2,194
|
|
|
30
|
|
|
5.42
|
%
|
|
147
|
|
|
2
|
|
|
5.40
|
%
|
|
FHLB
of NY stock
|
|
|
2,756
|
|
|
44
|
|
|
6.33
|
%
|
|
2,389
|
|
|
33
|
|
|
5.48
|
%
|
|
Total
interest-earning assets
|
|
|
401,622
|
|
|
7,010
|
|
|
6.92
|
%
|
|
331,676
|
|
|
5,118
|
|
|
6.12
|
%
|
|
Noninterest-earning
assets
|
|
|
40,748
|
|
|
|
|
|
|
|
|
37,934
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
442,370
|
|
|
|
|
|
|
|
$
|
369,610
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts (1)
|
|
$
|
40,828
|
|
|
113
|
|
|
1.10
|
%
|
$
|
58,061
|
|
|
153
|
|
|
1.05
|
%
|
|
NOW
accounts (2)
|
|
|
93,592
|
|
|
824
|
|
|
3.49
|
%
|
|
59,821
|
|
|
241
|
|
|
1.60
|
%
|
|
Time
deposits (3)
|
|
|
181,674
|
|
|
2,007
|
|
|
4.38
|
%
|
|
155,682
|
|
|
1,312
|
|
|
3.34
|
%
|
|
Total
interest-bearing deposits
|
|
|
316,094
|
|
|
2,944
|
|
|
3.70
|
%
|
|
273,564
|
|
|
1,706
|
|
|
2.47
|
%
|
|
Federal
Home Loan Bank borrowings
|
|
|
50,490
|
|
|
644
|
|
|
5.06
|
%
|
|
46,322
|
|
|
514
|
|
|
4.40
|
%
|
|
Loan
payable
|
|
|
-
|
|
|
-
|
|
|
|
|
|
2,497
|
|
|
50
|
|
|
7.94
|
%
|
|
Total
interest-bearing liabilities
|
|
|
366,584
|
|
|
3,588
|
|
|
3.88
|
%
|
|
322,383
|
|
|
2,270
|
|
|
2.79
|
%
|
|
Noninterest-bearing
liabilities
|
|
|
27,252
|
|
|
|
|
|
|
|
|
22,380
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
393,836
|
|
|
|
|
|
|
|
|
344,763
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
48,534
|
|
|
|
|
|
|
|
|
24,847
|
|
|
|
|
|
|
|
|
Total
liabilities and retained earnings
|
|
$
|
442,370
|
|
|
|
|
|
|
|
$
|
369,610
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-equivalent
basis adjustment
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
3,413
|
|
|
|
|
|
|
|
$
|
2,848
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
3.04
|
%
|
|
|
|
|
|
|
|
3.33
|
%
|
|
Net
interest-earning assets
|
|
$
|
35,038
|
|
|
|
|
|
|
|
$
|
9,293
|
|
|
|
|
|
|
|
|
Net
interest margin
(4)
|
|
|
|
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
|
|
3.41
|
%
|
|
Average
interest-earning assets to average interest-bearing liabilities
|
|
|
109.56
|
%
|
|
|
|
|
|
|
|
102.88
|
%
|
|
|
|
|
|
|
| |
|
(1)
Includes passbook savings, money market passbook and club
accounts.
|
|
(2)
Includes regular and money market NOW accounts.
|
|
(3)
Includes certificates of deposits and individual retirement
accounts
|
|
(4)
Calculated as annualized net interest income divided by average
total
interest-earning assets
|
Comparison
of Operating Results for the Three Months Ended December 31, 2006 and
2005
Net
Income.
The
Company recorded net income of $272,000 for the three months ended December
31,
2006. Net income increased $106,000, or 63.9%, compared to $166,000 for the
three months ended December 31, 2005.
Net
Interest and Dividend Income.
Net
interest and dividend income increased $565,000, or 19.8%, to $3.4 million
for the three months ended December 31, 2006 from $2.8 million for the
three months ended December 31, 2005. Total interest and dividend income
increased $1.9 million to $7.0 million for the three month period ended December
31, 2006 while total interest expense increased $1.3 million to $3.6 million
from the same three month period one year earlier.
Interest
Income. The
increase in interest
income of $1.9 million, or 36.8%, to $7.0 million for the three months ended
December 31, 2006 was primarily due to an increase in the average balance of
interest-earning assets of $69.9 million to $401.6 million from $331.7 million,
as well as an improvement in the average yield on such assets to 6.92% from
6.12%. Interest earned on loans increased to $6.5 million for the three months
ended December 31, 2006 from $4.6 million for the prior year period, reflecting
an $79.5 million, or 28.6%, increase in the average balance of loans as well
as
a 70 basis point increase in the average yield on such loans to 7.24% from
6.54%. The improved yield on loans reflected the higher balance of
higher-yielding commercial business, commercial real estate and construction
loans. The yield on loans would have been 25 basis points greater at 7.49%
if
not for $7.1 million in loans that did not accrue interest during the three
months ended December 31, 2006.
Interest
earned on our investment securities decreased $56,000, or 11.2%, due to a $8.9
million, or 17.7%, decrease in the average balance of such securities. The
average yield on such securities increased 31 basis points from 3.95% for the
three months ended December 31, 2005 to 4.26% for the three months ended
December 31, 2006. The decreased average balance of our investment securities
reflected the deployment of proceeds from prepayments or repayments into
higher-yielding loans.
Interest
Expense. Interest
expense increased $1.3 million, or 58.1%, to $3.6 million for the three months
ended December 31, 2006 from $2.3 million for the three months ended December
31, 2005. The increase in interest expense was primarily due to a $44.2 million,
or 13.7%, increase in the average balance of interest-bearing liabilities to
$366.6 million from $322.4 million. In addition, the average cost of such
liabilities increased to 3.88% from 2.79% in the higher market interest rate
environment.
The
average balance of interest bearing deposits increased to $316.1 million from
$273.6 million while the average cost of such deposits increased to 3.70% from
2.47% in the higher market interest rate environment. This resulted in an
increase in interest paid on deposits from $1.7 million to $2.9 million for
the
three months ended December 31, 2006 compared to the same period last year.
Interest paid on Federal Home Loan Bank advances increased to $644,000 for
the
three months ended December 31, 2006 from $514,000 for the prior year period.
In
addition to an increase in the average balance of such advances from $46.3
million to $50.5 million, there was a 66 basis point increase in the average
cost of Federal Home Loan Bank advances to 5.06% for the three months ended
December 31, 2006 from 4.40% for the prior year period.
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 $167,000 for the three months ended December 31, 2006 compared
to a
$120,000 provision for the prior year period. The increase in the provision
in
2006 as compared to 2005 was due primarily to the overall growth of the loan
portfolio and the inherent risks within that growth, specifically the increase
in the proportion of construction and commercial real estate loans in our
portfolio.
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 in
the
preceding paragraph. Historically, our loan portfolio has consisted primarily
of
one-to four-family residential mortgage loans. However, our current business
plan calls for increases in construction, commercial real estate and commercial
business loans. 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.
Although
we believe that we use the best information available to establish the allowance
for loan losses, future additions to the allowance may be necessary, based
on
estimates that are susceptible to change as a result of changes in economic
conditions and other factors. In addition, the Federal Deposit Insurance
Corporation, as an integral part of its examination process, will periodically
review our allowance for loan losses. This agency may require us to recognize
adjustments to the allowance, based on its judgments about information available
to it at the time of its examination.
Other
Income. Non-interest
income increased $98,000, or 41.7%, to $333,000 for the three months ended
December 31, 2006 from $235,000 for the three months ended December 31, 2005.
The increase reflected an increase in service charges and a larger increase
in
the cash surrender value of Magyar Bank’s bank-owned life insurance for the
three months ended December 31, 2006 compared to the earlier three-month period.
In addition, the Bank recorded $19,000 in rental income from a lease of office
space at its headquarters that commenced in April 2006.
Other
Expenses. Non-interest
expense increased to $3.2 million for the three months ended December 31, 2006
from $2.7 million for the three months ended December 31, 2005.
Compensation
and employee benefits increased $285,000, or 18.3% to $1.8 million for the
three
months ended December 31, 2006 from $1.6 million for the three months ended
December 31, 2005. This increase included $73,000 in ESOP expenses recorded
during the current period. In addition, the increase also reflected staff
additions in our commercial real estate and retail banking areas, as well as
normal merit increases and increases in employee benefit costs.
The
higher non-interest expense also was due to higher occupancy expenses, which
increased to $592,000 for the three months ended December 31, 2006 from $468,000
for the prior year period. The increase primarily reflected the addition of
the
Bank’s fourth branch office in Branchburg, New Jersey, which was completed in
September 2006. In addition, other expenses increased $85,000, or 24.7%, to
$429,000 for the three months ended December 31, 2006 from $344,000 for the
same
period last year primarily due to expenses associated with the non-performing
loans described above.
Income
Tax Expense. Income
tax expense was $102,000 for the three months ended December 31, 2006, as
compared to $82,000 for the three months ended December 31, 2005. The
effective tax rate
was
27.3%
and 33.1% for the three month periods ended December 31, 2006 and 2005,
respectively. The decrease in the effective tax rate between periods was due
to
the creation of the Magbank Investment Company in August 2006. The MagBank
Investment Company meets the requirements to elect New Jersey Investment Company
status and therefore is subject to a New Jersey state tax rate of 3.6% compared
with a 9.0% corporate business tax rate for New Jersey corporations.
The
benefit from the MagBank investment Company was partially offset by an added
New
Jersey state tax assessment for privilege periods ending on or after July 1,
2006, which affects the Company’s year ending September 30, 2007. New Jersey
taxpayers shall be assessed and must pay a surtax equal to 4% of the amount
of
tax liability remaining after applying credits against liability, other than
credits for installment payments, estimated payments made with a request for
extension to file a return, or overpayments from a prior privilege period.
Payments of the surtax are to be made annually as required under N.J.S.A.
54:10A-15. No credits shall be allowed against the surtax liability except
for
credits for installment payments, estimated payments made with a request for
an
extension of time for filing a return, or overpayments from prior privilege
periods.
New
Accounting Pronouncements
In
July
2006, FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in
Income Taxes: an interpretation of FASB Statement No. 109, “Accounting for
Income Taxes.” FIN 48 clarifies FASB 109, to indicate a criterion that an
individual tax position would have to meet for some or all of the benefit of
that position to be recognized in an entity’s financial statements. In
applying FIN 48, an entity is required to evaluate a tax position using a
two-step process. First, the entity should evaluate the position for
recognition. An entity should recognize the financial statement benefit of
a tax position if it determines that it is more likely than not that the
position will be sustained on examination. The term “more likely than not” means
“a likelihood of more than 50 percent.” In assessing whether the
more-likely-than-not criterion is met, the entity should assume that the tax
position will be reviewed by the applicable taxing authority. Additionally,
if past administrative practices and precedents of the taxing authority are
widely understood, those practices and precedents should be considered in an
entity’s assessment of the more-likely-than-not criterion. The second step
is measurement: a tax position that meets the more-likely-than-not recognition
threshold is measured to determine the amount of benefit to recognize in the
financial statements. The tax position is measured at the largest amount of
benefit that is greater than 50 percent likely of being realized upon ultimate
settlement. FIN 48 is effective for fiscal years beginning after December
15, 2006 (as of October 1, 2007 for the Company) and is currently under
evaluation by the Company to determine the impact on the Company’s consolidated
financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” This Statement defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement applies to other accounting pronouncements that require or permit
fair
value measurements, but does not require any new fair value
measurements. The Statement is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years (as of
September 30, 2008 for the Company). The Company does not expect the
adoption of SFAS No. 157 to have a material impact on its financial
statements.
In
September 2006, FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans,” which requires
employers to recognize on their balance sheets the funded status of pension
and
other postretirement benefit plans. This requirement is effective as
of
the
end
of the first fiscal year ending after December 31, 2006 (as of
September 30, 2007 for the Company). Statement 158 will also require
fiscal-year-end measurements of plan assets and benefit obligations, eliminating
the use of earlier measurement dates currently permissible. The new
measurement-date requirement will not be effective until fiscal years ending
after December 15, 2008 (as of September 30, 2009). The Statement
amends Statements 87, 88, 106 and 132R, but retains most of their measurement
and disclosure guidance and will not change the amounts recognized in the income
statement as net periodic benefit cost. The Company is evaluating the
effect of SFAS No. 158 on its financial statements.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (SAB 108), to address diversity in
practice in quantifying financial statement misstatements. SAB 108 requires
that
registrants use a dual approach in quantifying misstatements based on their
impact on the financial statements and related disclosures. SAB 108 is effective
as of September 30, 2007, allowing a one-time transitional cumulative effect
adjustment to retained earnings for errors (if any) that were not previously
deemed material, but are material under the guidance in SAB 108. The
Company is currently evaluating the impact of adopting SAB 108 on its financial
statements.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
The
Company’s liquidity is a measure of its ability to fund loans, pay withdrawals
of deposits, and other cash outflows in an efficient, cost-effective
manner. The Company’s short-term sources of liquidity include maturity,
repayment and sales of assets, excess cash and cash equivalents, new deposits,
brokered deposits, other borrowings, and new advances from the Federal Home
Loan
Bank. There has been no material adverse change during the three month period
ended December 31, 2006 in the ability of the Company and its subsidiaries
to
fund their operations.
At
December 31, 2006, the Company had commitments outstanding under letters of
credit of $450,000, commitments
to originate loans of $39.0 million, and commitments to fund undisbursed
balances of closed loans and unused lines of credit of $35.0 million. There
has been no material change during the three months ended December 31, 2006
in
any of the Company’s other contractual obligations or commitments to make future
payments.
Capital
Requirements
The
Bank
was in compliance with all of its regulatory capital requirements as of December
31, 2006.
Asset
and Liability Management
The
Company’s market risk exposure is predominately caused by interest rate risk,
which is defined as the sensitivity of the Company’s current and future
earnings, the values of its assets and liabilities, and the value of its capital
to changes in the level of market interest rates. The Company’s balance
sheet at September 30, 2006 reflected sensitivity to decreases in market
interest rate movements.
In
an
effort to reduce the anticipated negative affect on earnings from decreases
in
market interest rates, interest rate floors with notional amounts of $15 million
were held by the Bank at December 31, 2006.
Management
of the Company believes that there has not been a material adverse change in
market risk during the three months ended December 31, 2006.
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this amended report to be signed on its behalf by the undersigned
thereunto duly authorized.
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MAGYAR
BANCORP, INC.
|
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(Registrant)
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|
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|
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|
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Date:
February 8, 2007
|
/s/
Elizabeth E. Hance
|
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Elizabeth
E. Hance
|
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President
and Chief Executive Officer
|
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|
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Date:
February 8, 2007
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/s/
Jon R. Ansari
|
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Jon
R. Ansari
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Senior
Vice President and Chief Financial
Officer
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13