Forward-Looking Statements

When used in this filing and in future filings by the Company 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," "believes", or similar expressions are intended to identify "forward looking statements." Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks previously disclosed in the Company's filings with the SEC, general economic conditions, changes in interest rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market acceptance of the Company's pricing, products and services, and with respect to the loans extended by the Bank and real estate owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may be incurred by the Company in connection with the resolution of these loans.

The Company 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 the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected.

The Company 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. Critical accounting policies may involve complex subjective decisions or assessments. We consider the following to be our critical accounting policies.

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. 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, the methodology for determining the allowance for loan losses is considered a critical accounting policy by management.

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 determined. 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 impaired 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 impairment 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 greater than the allowances we have established, which could have a material negative effect on our financial results.

Other Real Estate Owned. Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its new cost or fair value less estimated selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.

Appraisals are critical in determining the fair value of the other real estate owned amount. Assumptions for appraisals are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable.

Deferred Income Taxes. The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

Comparison of Financial Condition at March 31, 2012 and September 30, 2011

Total assets decreased $3.7 million, or 0.7%, to $520.3 million at March 31, 2012 from $524.0 million at September 30, 2011. The decrease was attributable to lower cash balances, which decreased $3.4 million, or 22.6%, to $11.6 million at March 31, 2012 from $15.0 million at September 30, 2011 and lower other real estate owned balances, which decreased $1.9 million, or 11.4%, to $14.7 million at March 31, 2012 from $16.6 million at September 30, 2011. The decrease was partially offset by higher balances of investment securities.

Cash and interest bearing deposits with banks decreased $3.4 million, or 22.6%, to $11.6 million at March 31, 2012 from $15.0 million at September 30, 2011. Investment security purchases and net deposit outflows accounted for the year-to-date decline.

Total loans receivable decreased $136,000 during the six months ended March 31, 2012 to $384.7 million and were comprised of $162.0 million (42.1%) one-to-four family residential mortgage loans, $137.6 million (35.8%) commercial real estate loans, $27.3 million (7.1%) commercial business loans, $24.5 million (6.4%) construction loans, $21.5 million (5.6%) home equity lines of credit and $11.8 million (3.0%) other loans. Contraction of the portfolio during the six months ended March 31, 2012 occurred primarily in construction loans, which decreased $9.6 million, followed by a decrease of $8.9 million in commercial business loans. Commercial real estate loans increased $16.6 million and residential mortgage loans increased $2.8 million.

Total non-performing loans ("NPLs") decreased by $1.6 million to $26.6 million at March 31, 2012 from $28.2 million at September 30, 2011. The ratio of NPLs to total loans decreased to 6.9% at March 31, 2012 from 7.3% at September 30, 2011.

Included in the NPLs total at March 31, 2012 were eleven construction loans totaling $11.4 million, eleven commercial loans totaling $8.6 million, sixteen residential mortgage loans totaling $6.1 million, and three home equity lines of credit totaling $529,000.

Adverse economic conditions have led to high levels of NPLs, particularly in the Company's construction loan portfolio. The repayment of construction loans is typically dependent upon the sale of the collateral securing the loan, which has been negatively impacted by rapid deterioration in the housing market and decreased buyer demand. As a result, construction projects have slowed and reached their maturity dates. In order for the Company to extend the loans beyond the original maturity date, the value of the collateral securing the loan must be assessed, which is typically done by obtaining an updated third-party appraisal. Given the deterioration in the economy and, specifically, the housing market, updated valuations of the collateral reflect depreciation from earlier assessments. To the extent that an updated valuation of the collateral is insufficient to cover a collateral-dependent loan, the Company reduces the balance of the loan via a charge to the allowance for loan loss.

At March 31, 2012, non-performing construction loans consisted of five loans totaling $7.2 million for the development of single family homes with collateral ranging from partially completed land to completed leased homes, five loans totaling $3.8 million secured by land and other real estate, and one loan totaling $313,000 secured by two complete condominium units. These loans were used for land acquisition and construction in various locations in the States of New Jersey and Pennsylvania. Magyar Bank is determining the proper course of action to collect the principal outstanding on these loans. Year-to-date, the Bank has charged off $327,000 in construction loan balances through a reduction of its allowance for loan loss.

Construction loans may contain interest reserves on which the interest is capitalized to the loan. At March 31, 2012, there was one performing construction loan with an interest reserve representing an outstanding balance of $294,000, original interest reserves of $95,000, advanced interest reserves of $5,000, and a remaining interest reserve balance of $90,000. At September 30, 2011, there was one performing construction loan with an interest reserve representing an outstanding balance of $290,000, an original interest reserve of $95,000, an advanced interest reserve of $1,000, and remaining interest reserve balance of $94,000.

Underwriting for construction loans with and without interest reserves has followed a uniform process. Construction loan progress is monitored on a monthly basis by management as well as by the Board of Directors. Each time an advance is requested, an inspection is made of the project by an outside engineer or appraiser, depending on the size and complexity of the project, to determine the amount of work completed and if the costs to date are supported adequately. The Bank's construction loan operations personnel compare the advance request with the original budget and remaining loan funds available to ensure the project is in balance and that at all times the amount remaining on the loan is sufficient to complete the project.

A number of the Bank's construction loans have been extended due to slower sales as a result of economic conditions. In cases where updated appraisals reflect collateral values insufficient to cover the loan, additional collateral and/or a principal reduction is required to extend the loan. Some of the Bank's loans that originally had interest reserves are non-performing. The Bank does not have any currently NPLs with active interest reserves. Once a loan is deemed impaired, any interest reserve is frozen and the loan is placed on non-accrual so that no future interest income is recorded on these loans. The Bank ceased originating new non-owner occupied construction loans in October 2008.

NPLs secured by one-to four-family residential properties including home equity lines of credit increased $1.8 million to $6.6 million at March 31, 2012 from $4.8 million at September 30, 2011. The loans consisted of two commercial-purpose loans totaling $2.1 million and fourteen consumer loans totaling $4.5 million. Included in the totals were three loans totaling $748,000 that were ninety days delinquent and still accruing interest at March 31, 2012. The Company has not and does not intend to originate or purchase sub-prime loans or option-ARM loans. Fiscal year-to-date, the Bank has charged off $101,000 in residential loans through a reduction of its allowance for loan loss.

Non-performing commercial real estate loans increased $746,000 to $8.3 million at March 31, 2012 from $7.6 million at September 30, 2011. The ten non-accrual loans were in various stages of foreclosure and collection at March 31, 2012. Fiscal year-to-date, there have been no charge-offs to commercial real estate loans.

Non-performing commercial business loans increased $17,000 to $272,000 at March 31, 2012 from $255,000 at September 30, 2011. The Bank is in the process of collecting the principal outstanding on the two non-accrual loans which will include foreclosure proceedings for those loans secured by real estate. Fiscal year-to-date, the Bank has charged off $69,000 in non-performing commercial business loans through a reduction of its allowance for loan loss.

The allowance for loan loss increased by $196,000 during the six months ended March 31, 2012 to $4.0 million from $3.8 million at September 30, 2011. The increase in the allowance for loan loss was primarily the result of higher specific reserves, which increased to $619,000 at March 31, 2012 from $316,000 at September 30, 2011, offset by a lower general allowance for construction loans. Performing construction loan balances decreased $5.4 million, or 29.2%, to $13.2 million during the six months ended March 31, 2012.

The allowance for loan loss does not typically include a specific reserve for NPLs as all such loans are reported at the lower of amortized cost or fair value, based upon updated independent appraisals of collateral or the discounted value of expected loan repayments. Valuations of such loans are performed at least annually with charge-offs recorded when appraised values, net of estimated selling and disposition costs, are less than the loan balances. Specific reserves may be used on occasions where an updated valuation is unavailable. At March 31, 2012, the Bank held specific reserves totaling $619,000 for a $1.7 million non-performing commercial real estate participation loan, for which the Bank was not the lead lender, and two home equity lines of credit to a real estate developer totaling $1.3 million.

The allowance for loan losses as a percentage of NPLs increased to 15.1% at March 31, 2012 from 13.5% at September 30, 2011. Our allowance for loan losses as a percentage of total loans increased to 1.04% at March 31, 2012 from 0.99% at September 30, 2011. Future increases in the allowance for loan losses may be necessary based on possible future increases in NPLs and charge-offs, possible additional deterioration of collateral values, and the possible continuation or deterioration of the current economic environment.

At March 31, 2012, investment securities totaled $72.5 million, reflecting an increase of $2.2 million, or 3.1%, from September 30, 2011. The increase was funded by cash and cash equivalents as well as sales of other real estate owned. Investment securities at March 31, 2012 consisted of $57.2 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $9.5 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, $2.6 million in "private-label" mortgage-backed securities, and $41,000 in state municipal bonds. There were no other-than-temporary-impairment charges for the Company's investment securities for the six months ended March 31, 2012.

Other real estate owned decreased $1.9 million to $14.7 million at March 31, 2012 from $16.6 million at September 30, 2011. During the six months ended March 31, 2012, the Bank sold three properties totaling $3.4 million for a loss of $42,000 and added five properties totaling $1.4 million resulting from foreclosure of collateral securing NPLs. The Bank is determining the proper course of action for its other real estate owned, which may include holding the properties until the real estate market improves, selling the properties to a developer and completing partially completed homes for either rental or sale. In addition, the Company has entered into contracts to sell $4.0 million of the properties held as other real estate owned. No additional losses are expected.

Total deposits decreased $2.4 million, or 0.6%, to $422.5 million during the six months ended March 31, 2012. The decrease in deposits occurred in certificates of deposit (including individual retirement accounts), which decreased $7.8 million, or 4.4%, to $167.8 million and savings accounts, which decreased $2.9 million, or 4.8% to $57.6 million. Offsetting the decrease were increases in interest-bearing checking accounts, which increased $7.2 million, or 23.1%, to $38.1 million and in non-interest checking accounts, which increased $1.5 million, or 2.9%, to $52.7 million.

Included in total deposits at March 31, 2012 were $483,000 in Certificate of Deposit Account Registry Service (CDARS) Reciprocal certificates of deposit and $8.1 million in brokered certificates of deposit. At September 30, 2011, the Company held $1.8 million in CDARS Reciprocal certificates of deposit and $10.0 million in brokered certificates of deposit.

Federal Home Loan Bank of New York advances decreased $2.2 million, or 6.4%, to $32.7 million while securities sold under agreements to repurchase were unchanged at $15.0 million at March 31, 2012.

Stockholders' equity increased $151,000, or 0.3%, to $44.7 million at March 31, 2012 from $44.5 million at September 30, 2011. The increase was due to the Company's results from operations, partially offset by changes in the Company's accumulated other comprehensive loss during the six month period.

The Company repurchased 10,700 shares of its common stock at an average price of $2.94 during the six months ended March 31, 2012,. Through March 31, 2012, the Company had repurchased 77,670 shares at an average price of $8.51 pursuant to the second stock repurchase plan, which has reduced outstanding shares to 5,806,624.

The Company's book value per share increased to $7.69 at March 31, 2012 from $7.67 at September 30, 2011. The increase was the result of the Company's results from operations.

Average Balance Sheets for the Three and Six Months Ended March 31, 2012 and 2011

The table on the following page presents certain information regarding the Company's financial condition and net interest income for the three months ended March 31, 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.

                                                                For the Three Months Ended March 31,
                                                      2012                                                2011
                                                 Interest                                            Interest
                                  Average         Income/          Yield/Cost         Average         Income/          Yield/Cost
                                  Balance         Expense         (Annualized)        Balance         Expense         (Annualized)
                                                                       (Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits        $    9,814     $         7                 0.28 %   $    9,344     $         4                 0.18 %
Loans receivable, net               384,489           4,692                 4.89 %      393,798           5,005                 5.15 %
Securities
Taxable                              72,307             514                 2.85 %       72,344             529                 2.97 %
Tax-exempt (1)                           47               1                 7.91 %           77               2                 8.44 %
FHLB of NY stock                      2,301              29                 5.05 %        2,760              40                 5.91 %
Total interest-earning assets       468,958           5,243                 4.48 %      478,323           5,580                 4.73 %
Noninterest-earning assets           54,474                                              53,639
Total assets                     $  523,432                                          $  531,962

Interest-bearing liabilities:
Savings accounts (2)             $   58,201              57                 0.39 %   $   61,667              89                 0.58 %
NOW accounts (3)                    145,052             162                 0.45 %      134,935             256                 0.77 %
Time deposits (4)                   168,425             797                 1.90 %      182,936             933                 2.07 %
Total interest-bearing
deposits                            371,678           1,016                 1.10 %      379,538           1,278                 1.37 %
Borrowings                           49,972             497                 3.99 %       60,727             597                 3.99 %
Total interest-bearing
liabilities                         421,650           1,513                 1.44 %      440,265           1,875                 1.73 %
Noninterest-bearing
liabilities                          57,105                                              48,026
Total liabilities                   478,755                                             488,291
Retained earnings                    44,677                                              43,671
Total liabilities and retained
earnings                         $  523,432                                          $  531,962

Tax-equivalent basis
adjustment                                                -                                                  (1 )
Net interest income                             $     3,730                                         $     3,704
Interest rate spread                                                        3.04 %                                              3.00 %
Net interest-earning assets      $   47,308                                          $   38,058
Net interest margin (5)                                                     3.19 %                                              3.14 %
Average interest-earning
assets to average
interest-bearing liabilities         111.22 %                                            108.64 %

(1) Calculated using 34% tax rate.

(2) Includes passbook savings, money market passbook and club accounts.

(3) Includes interest-bearing checking and money market accounts.

(4) Includes certificates of deposits and individual retirement accounts.

(5) Calculated as annualized net interest income divided by average total interest-earning assets.

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                                                                 For the Six Months Ended March 31,
                                                      2012                                                2011
                                                 Interest                                            Interest
                                  Average         Income/          Yield/Cost         Average        Income/          Yield/Cost
                                  Balance         Expense         (Annualized)        Balance        Expense         (Annualized)
                                                                       (Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits        $   12,424     $        18                 0.30 %   $   14,367     $       15                 0.21 %
Loans receivable, net               383,268           9,398                 4.89 %      395,944         10,152                 5.14 %
Securities
Taxable                              72,671           1,042                 2.86 %       68,061          1,020                 3.00 %
Tax-exempt (1)                           60               3                 4.31 %           87              4                 4.40 %
FHLB of NY stock                      2,300              53                 4.58 %        2,756             87                 6.34 %
Total interest-earning assets       470,723          10,514                 4.45 %      481,215         11,278                 4.70 %
Noninterest-earning assets           54,883                                              53,526
Total assets                     $  525,606                                          $  534,741

Interest-bearing liabilities:
Savings accounts (2)             $   59,046     $       131                 0.44 %   $   62,280     $      198                 0.64 %
NOW accounts (3)                    143,604             323                 0.45 %      137,761            596                 0.87 %
Time deposits (4)                   171,076           1,664                 1.94 %      184,049          1,900                 2.07 %
Total interest-bearing
deposits                            373,726           2,118                 1.13 %      384,090          2,694                 1.41 %
Borrowings                           49,943           1,001                 4.00 %       60,498          1,207                 4.00 %
Total interest-bearing
liabilities                         423,669           3,119                 1.47 %      444,588          3,901                 1.76 %
Noninterest-bearing
. . .