Magyar Bancorp Inc. Reports Operating Results (10-K)

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Dec 27, 2012
Magyar Bancorp Inc. (MGYR, Financial) filed Annual Report for the period ended 2012-09-30.

Magyar Bancorp, Inc. has a market cap of $24.2 million; its shares were traded at around $4.35 with a P/E ratio of 48.9 and P/S ratio of 1.1.

Highlight of Business Operations:

We consider a number of factors when we originate commercial real estate loans. During the underwriting process we evaluate the business qualifications and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition of the mortgaged property securing the loan. When evaluating the business qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly debt service. We require personal guarantees on all commercial real estate loans made to individuals. Generally, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals. All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.

At September 30, 2012, our portfolio of commercial business and commercial real estate loans totaled $178.7 million, or 46.0% of our total loans, compared to $157.2 million or 40.8% of our total loans at September 30, 2011 and $149.9 million or 36.7% of our total loans at September 30, 2010. It is our intent to continue to emphasize the origination of commercial business and commercial real estate loans. Commercial business and commercial real estate loans generally have more risk than one-to four-family residential mortgage loans. At September 30, 2012, our non-performing loans decreased to $20.1 million from $28.2 million at September 30, 2011. 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.

Average Balance Sheet. The following table presents certain information regarding our financial condition and net interest income for the years ended September 30, 2012 and 2011. 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.

Non-interest income declined due to lower service charge income, which decreased $190,000, and lower gains on the sales of assets, which were $752,000 for the twelve months ended September 30, 2012 compared with $878,000 for the twelve months ended September 30, 2011.

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