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 June 30, 2012 and September 30, 2011

Total assets increased $3.8 million to $527.8 million during the nine months ended June 30, 2012 from $524.0 million at September 30, 2011. The increase was attributable to higher cash balances, partially offset by lower balances of investment securities and loans receivable.

Cash and interest bearing deposits with banks increased $11.8 million, or 78.4%, to $26.8 million at June 30, 2012 from $15.0 million at September 30, 2011. Deposit inflows as well as sales and amortization of investment securities and loan receivables accounted for the year-to-date increase.

Total loans receivable decreased $3.6 million during the nine months ended June 30, 2012 to $377.6 million and were comprised of $163.3 million (42.8%) one-to-four family residential mortgage loans, $140.0 million (36.7%) commercial real estate loans, $27.5 million (7.2%) commercial business loans, $17.1 million (4.5%) construction loans, $21.8 million (5.7%) home equity lines of credit and $11.6 million (3.1%) other loans. Contraction of the portfolio during the nine months ended June 30, 2012 occurred primarily in construction loans, which decreased $17.1 million, followed by a decrease of $8.7 million in commercial business loans. Commercial real estate loans increased $19.0 million and residential mortgage loans increased $4.0 million.

Total non-performing loans ("NPLs") defined as loans 90 days or more delinquent, decreased by $3.2 million to $25.0 million at June 30, 2012 from $28.2 million at September 30, 2011. The ratio of NPLs to total loans decreased to 6.5% at June 30, 2012 from 7.3% at September 30, 2011.

Included in the NPL totals were seven construction loans totaling $5.3 million, ten commercial real estate loans totaling $8.0 million, three commercial business loan totaling $225,000, twenty-four residential mortgage loans totaling $10.6 million, and six home equity lines of credit totaling $806,000.

During the nine months ended June 30, 2012, the allowance for loan losses remained $3.8 million. An increase in specific reserves, which increased to $775,000 at June 30, 2012 from $316,000 at September 30, 2011, was offset by lower general reserves for non-impaired construction loans. During the nine months ended June 30, 2012, non-impaired construction loan balances decreased $8.0 million, or 43.2%, to $10.6 million. The allowance for loan loss to non-performing loans increased to 15.2% at June 30, 2012 compared with 13.5% at September 30, 2011. The Company's allowance for loan losses as a percentage of total loans was 1.0% at both June 30, 2012 and September 30, 2011. Future increases in the allowance for loan losses may be necessary based on the growth of the loan portfolio, the change in composition of the loan portfolio, possible future increases in non-performing loans and charge-offs, and the possible continuation of the current adverse economic environment

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 June 30, 2012, non-performing construction loans consisted of seven loans totaling $5.3 million for the development of single family homes. These loans were used for land acquisition and construction in various locations in the States of New Jersey and Pennsylvania. Magyar Bank is pursing foreclosure of the collateral securing the loans. Year-to-date, the Bank has charged off $770,000 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 June 30, 2012, there was one performing construction loan with an interest reserve representing an outstanding balance of $639,000, original interest reserves of $95,000, advanced interest reserves of $10,000, and a remaining interest reserve balance of $85,000. 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 $6.6 million to $11.4 million at June 30, 2012 from $4.8 million at September 30, 2011. The loans consisted of two commercial-purpose loans totaling $4.7 million and twenty-two consumer loans totaling $6.7 million. Included in the totals were two loans totaling $3.3 million that were ninety days delinquent and still accruing interest at June 30, 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 $205,000 in residential and home equity line of credit loans through a reduction of its allowance for loan loss.

Non-performing commercial real estate loans increased $402,000 to $8.0 million at June 30, 2012 from $7.6 million at September 30, 2011. The ten non-accrual loans were in various stages of foreclosure and collection at June 30, 2012. Fiscal year-to-date, there have been no charge-offs to commercial real estate loans.

Non-performing commercial business loans decreased $30,000 to $225,000 at June 30, 2012 from $255,000 at September 30, 2011. 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 was $3.8 million at June 30, 2012 and September 30, 2011. Provisions for loans loss of $1.0 million for the nine months ended June 30, 2012 were equal to the level of charge-offs during the same period.

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 on an annual basis 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 or where a short-term resolution to the impairment is anticipated. At June 30, 2012, the Bank held specific reserves of $650,000 for a $1.7 million non-performing commercial real estate participation loan, for which the Bank was not the lead lender, and $125,000 for two performing 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 15.2% at June 30, 2012 from 13.5% at September 30, 2011. Our allowance for loan losses as a percentage of total loans was 1.0% at June 30, 2012 and 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 June 30, 2012, investment securities totaled $64.3 million, reflecting a decrease of $6.0 million, or 8.6%, from September 30, 2011. Investment securities at June 30, 2012 consisted of $48.9 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $9.8 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, $2.5 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 nine months ended June 30, 2012. The Company purchased $27.4 million of U.S. Government-sponsored enterprise obligations, received repayments totaling $19.2 million and sold securities totaling $14.2 million during the nine months ended June 30, 2012.

Other real estate owned decreased $225,000 to $16.4 million at June 30, 2012 from $16.6 million at September 30, 2011. During the nine months ended June 30, 2012, the Bank sold four properties totaling $4.1 million for a loss of $76,000 and added six properties totaling $4.6 million resulting from foreclosure of collateral securing non-performing loans. In addition, one property in the amount of $1.6 million was transferred to premises for future use by the Bank. 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. During the quarter ended June 30, 2012, the Company sold one property from its other real estate owned portfolio totaling $242,000 for a loss of $34,000. In addition, the Company has entered into contracts to sell $4.5 million of the properties held as other real estate owned. No additional losses are expected.

Total deposits increased $1.7 million, or 0.4%, to $426.7 million during the nine months ended June 30, 2012. The increase in deposits occurred in interest-bearing checking accounts, which increased $12.7 million, or 41.2%, to $43.7 million, money market accounts, which increased $2.4 million, or 2.3%, to $109.1 million and non-interest checking accounts, which increased $1.5 million, or 2.9%, to $52.7 million. Offsetting the increase was a decrease of $11.7 million, or 6.7%, in certificates of deposit (including individual retirement accounts), to $163.8 million and a $3.1 million, or 5.2%, decrease in savings accounts to $57.4 million. Included with the total deposits at June 30, 2012 were $7.5 million in brokered certificates of deposit. At September 30, 2011 the brokered certificates of deposit totaled $10.0 million.

Federal Home Loan Bank of New York advances increased $772,000, or 2.2%, to $35.7 million at June 30, 2012 from $34.9 million at September 30, 2011, while securities sold under agreements to repurchase were unchanged at $15.0 million at June 30, 2012.

Stockholders' equity increased $274,000, or 0.6%, to $44.8 million at June 30, 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 nine month period.

During the nine months ended June 30, 2012, the Company repurchased 13,370 shares at an average price of $3.23. Through June 30, 2012, the Company had repurchased 80,340 shares at an average price of $8.37 pursuant to the second stock repurchase plan, which has reduced outstanding shares to 5,808,004.

The Company's book value per share increased to $7.71 at June 30, 2012 from $7.67 at September 30, 2011. The increase was due to the Company's results of operations for the nine months ended June 30, 2012.

Average Balance Sheets for the Three and Nine Months Ended June 30, 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 June 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.

                      MAGYAR BANCORP, INC. AND SUBSIDIARY

                       Comparative Average Balance Sheets

                             (Dollars In Thousands)



                                                                         For the Three Months Ended June 30,
                                                                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                    $  16,198     $       10               0.27 %   $   6,302     $        3               0.22 %
Loans receivable, net                          382,921          4,670               4.89 %     396,347          5,076               5.14 %
Securities
Taxable                                         67,879            473               2.80 %      69,926            506               2.90 %
Tax-exempt (1)                                      41              1               9.09 %          72              2               9.09 %
FHLB of NY stock                                 2,299             26               4.49 %       2,747             31               4.49 %
Total interest-earning assets                  469,338          5,180               4.43 %     475,394          5,618               4.74 %
Noninterest-earning assets                      54,818                                          56,276
Total assets                                 $ 524,156                                       $ 531,670

Interest-bearing liabilities:
Savings accounts (2)                         $  57,768             50               0.35 %   $  60,875             87               0.57 %
NOW accounts (3)                               145,440            159               0.44 %     138,202            224               0.65 %
Time deposits (4)                              167,484            760               1.82 %     180,173            922               2.05 %
Total interest-bearing deposits                370,692            969               1.05 %     379,250          1,233               1.30 %
Borrowings                                      49,599            475               3.84 %      59,917            579               3.88 %
Total interest-bearing liabilities             420,291          1,444               1.38 %     439,167          1,812               1.65 %
Noninterest-bearing liabilities                 59,099                                          48,137
Total liabilities                              479,390                                         487,304
Retained earnings                               44,766                                          44,366
Total liabilities and retained earnings      $ 524,156                                       $ 531,670

Tax-equivalent basis adjustment                                     -                                              (1 )
Net interest income                                        $    3,736                                      $    3,805
Interest rate spread                                                                3.05 %                                          3.09 %
Net interest-earning assets                  $  49,047                                       $  36,227
Net interest margin (5)                                                             3.19 %                                          3.21 %
Average interest-earning assets to average
interest-bearing liabilities                    111.67 %                                        108.25 %

(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.

                      MAGYAR BANCORP, INC. AND SUBSIDIARY

                       Comparative Average Balance Sheets

                             (Dollars In Thousands)



                                                                        For the Nine Months Ended June 30,
                                                                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                    $  13,677     $      29               0.28 %   $  11,679     $      19               0.21 %
Loans receivable, net                          383,128        14,058               4.89 %     396,079        15,228               5.14 %
Securities
Taxable                                         70,891         1,516               2.85 %      68,683         1,525               2.97 %
Tax-exempt (1)                                      53             3               6.55 %          82             5               6.66 %
FHLB of NY stock                                 2,300            79               4.55 %       2,753           118               5.72 %
Total interest-earning assets                  470,049        15,685               4.45 %     479,276        16,895               4.71 %
Noninterest-earning assets                      54,863                                         54,441
Total assets                                 $ 524,912                                      $ 533,717

. . .