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LOANS RECEIVABLE, NET

12 Months Ended

Sep. 30, 2020

NOTE E - LOANS RECEIVABLE, NET

Loans receivable are comprised of the following:

	September 30,
	2020			2019
	(In thousands)

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

Total loans receivable, net	$	603,110		$	518,217

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

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

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

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

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

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

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2020	Investment		Allowance		Investment		Investment		Balance
	(In thousands)

One-to four-family residential	$	—	$	—	$	2,601	$	2,601	$	2,601
Commercial real estate		599		46		3,806		4,405		4,405
Construction		2,306		175		2,835		5,141		5,206
Commercial business		—		—		2,014		2,014		2,218
Total impaired loans	$	2,905	$	221	$	11,256	$	14,161	$	14,430

					Impaired Loans
	Impaired Loans with				with No Specific
	Specific Allowance				Allowance		Total Impaired Loans
									Unpaid
At and for the year ended	Recorded		Related		Recorded		Recorded		Principal
September 30, 2019	Investment		Allowance		Investment		Investment		Balance
	(In thousands)

One-to four-family residential	$	—	$	—	$	1,405	$	1,405	$	1,405
Commercial real estate		—		—		4,593		4,593		4,593
Construction		—		—		2,900		2,900		2,900
Commercial business		—		—		1,456		1,456		1,456
Total impaired loans	$	—	$	—	$	10,354	$	10,354	$	10,354

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	One-to Four-							Home Equity
	Family		Commercial					Lines of		Commercial
	Residential		Real Estate		Construction			Credit		Business			Other			Unallocated			Total
	(In thousands)

Balance-September 30, 2019	$	731	$	2,066	$	511		$	138	$	1,184		$	8		$	250		$	4,888
Charge-offs		—		—		(65	)		—		(204	)		—			—			(269	)
Recoveries		11		5		—			—		99			—			—			115
Provision (credit)		293		1,161		226			41		(45	)		(7	)		(3	)		1,666
Balance-September 30, 2020	$	1,035	$	3,232	$	672		$	179	$	1,034		$	1		$	247		$	6,400

	One-to Four-								Home Equity
	Family			Commercial					Lines of		Commercial
	Residential			Real Estate			Construction		Credit		Business			Other			Unallocated		Total
	(In thousands)

Balance-September 30, 2018	$	687		$	1,540		$	493	$	109	$	1,151		$	25		$	195	$	4,200
Charge-offs		—			(1	)		—		—		(100	)		—			—		(101	)
Recoveries		120			—			—		1		—			—			—		121
Provision (credit)		(76	)		527			18		28		133			(17	)		55		668
Balance-September 30, 2019	$	731		$	2,066		$	511	$	138	$	1,184		$	8		$	250	$	4,888

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

	One-to-Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(In thousands)
Allowance for Loan Losses:
Balance - September 30, 2020	$	1,035	$	3,232	$	672	$	179	$	1,034	$	1	$	247	$	6,400
Individually evaluated
for impairment		—		46		175		—		—		—		—		221
Collectively evaluated
for impairment		1,035		3,186		497		179		1,034		1		247		6,179

Loans receivable:
Balance - September 30, 2020	$	210,360	$	248,134	$	28,242	$	19,373	$	100,993	$	4,157	$	—	$	611,259
Individually evaluated
for impairment		2,601		4,405		5,141		—		2,014		—		—		14,161
Collectively evaluated
for impairment		207,759		243,729		23,101		19,373		98,979		4,157		—		597,098

	One-to- Four						Home Equity
	Family		Commercial				Lines of		Commercial
	Residential		Real Estate		Construction		Credit		Business		Other		Unallocated		Total
	(Dollars in thousands)
Allowance for Loan Losses:
Balance - September 30, 2019	$	731	$	2,066	$	511	$	138	$	1,184	$	8	$	250	$	4,888
Individually evaluated
for impairment		—		—		—		—		—		—		—		—
Collectively evaluated
for impairment		731		2,066		511		138		1,184		8		250		4,888

Loans receivable:
Balance - September 30, 2019	$	190,415	$	232,544	$	28,451	$	17,832	$	48,769	$	4,990	$	—	$	523,001
Individually evaluated
for impairment		1,405		4,593		2,900		—		1,456		—		—		10,354
Collectively evaluated
for impairment		189,010		227,951		25,551		17,832		47,313		4,990		—		512,647

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

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

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

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

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

Total		1	$	252	$	220

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

Total		1	$	260	$	363

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

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

(1) Includes home equity loans.

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

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