UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-QSB





[X]
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      quarterly period ended June 30, 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.
                Employerincorporation
                or organization)
            Identification
                Number)400
                Somerset StreetNew
                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.


YES
      [ X ]
      NO [   ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YES
      [   ] NO [ X ]





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 August 14, 2006Common
                Stock,
            $0.01
                Par Value 5,923,742





Transitional
      Small Business Disclosure Format YES [   ] NO [ X ]





MAGYAR
      BANCORP, INC.





Form
      10-QSB Quarterly Report





Table
      of Contents








PART
      I. FINANCIAL INFORMATION





Page
                NumberItem
                1.
            Financial
                Statements
            
            1Item
                2.
            Management’s
                Discussion and Analysis of Financial
                Conditionand
                Results of Operations
            
            11Item
                3.
            Controls
                and Procedures
            
            24PART
                II. OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            
            25Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            
            25Item
                3.
            Defaults
                Upon Senior Securities
            
            25Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            
            25Item
                5.
            Other
                Information
            
            25Item
                6.
            Exhibits
            
            25Signature
                Pages
            
            26











**MAGYAR
                  BANCORP, INC. AND
                  SUBSIDIARY**CONSOLIDATED
                  BALANCE SHEETS(In
                  Thousands)June
                  30,
              
              September
                  30,2006
              
              2005(Unaudited)ASSETSCash
              
              $
              5,249
              
              $
              897Interest
                  bearing deposits with banks
              
              
              353
              
              
              2,312Total
                  cash and cash equivalents
              
              
              5,602
              
              
              3,209Investment
                  securities - available for sale, at fair value
              
              
              16,903
              
              
              20,602Investment
                  securities - held to maturity, at cost (fair value of $26,512 and
                  $33,853at
                  June 30, 2006 and September 30, 2005, respectively)
              
              
              27,403
              
              
              34,269Federal
                  Home Loan Bank of New York stock, at cost
              
              
              2,196
              
              
              2,444Loans
                  receivable, net of allowance for loan losses of $3,714 and $3,129
                  atJune
                  30, 2006 and September 30, 2005, respectively
              
              
              324,301
              
              
              267,317Bank
                  owned life insurance
              
              
              9,573
              
              
              5,813Accrued
                  interest receivable
              
              
              2,016
              
              
              1,556Premises
                  and equipment, net
              
              
              21,347
              
              
              19,463Other
                  assets
              
              
              1,395
              
              
              5,032Total
                  assets
              
              $
              410,736
              
              $
              359,705LIABILITIES
                  AND STOCKHOLDERS' EQUITYLiabilitiesDeposits
              
              $
              318,592
              
              $
              278,090Escrowed
                  funds
              
              
              1,314
              
              
              1,195Federal
                  Home Loan Bank of New York advances
              
              
              33,014
              
              
              38,872Securities
                  sold under agreements to repurchase
              
              
              5,000
              
              
              10,000Loans
                  payable
              
              
              -
              
              
              2,497Accrued
                  interest payable
              
              
              1,152
              
              
              496Accounts
                  payable and other liabilities
              
              
              4,295
              
              
              4,167Total
                  liabilities
              
              
              363,367
              
              
              335,317Stockholders'
                  equityPreferred
                  stock: $.01 Par Value, 1,000,000 shares authorized; no shares
                  issued
              
              
              -
              
              
              -Common
                  stock: $.01 Par Value, 8,000,000 shares authorized; 5,923,742
                  issuedat
                  June 30, 2006, no shares issued at September 30, 2005.
              
              
              59
              
              
              -Additional
                  paid-in capital
              
              
              25,778
              
              
              -Unearned
                  shares held by Employee Stock Ownership Plan
              
              
              (2,191
              )
              
              -Retained
                  earnings - substantially restricted
              
              
              24,765
              
              
              24,996Accumulated
                  other comprehensive loss, net
              
              
              (1,042
              )
              
              (608
              )Total
                  stockholders' equity
              
              
              47,369
              
              
              24,388Total
                  liabilities and stockholders' equity
              
              $
              410,736
              
              $
              359,705See
                  accompanying notes to consolidated financial statements.






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 1




**MAGYAR
                  BANCORP, INC. AND SUBSIDIARY**CONSOLIDATED
                  STATEMENTS OF OPERATIONS(In
                  Thousands, Except Per Share Data)For
                  the Three Months
              
              For
                  the Nine MonthsEnded
                  June 30,
              
              Ended
                  June 30,2006
              
              2005
              
              2006
              
              2005(Unaudited)
              
              (Unaudited)Interest
                  and dividend incomeLoans,
                  including fees
              
              $
              5,624
              
              $
              3,359
              
              $
              15,267
              
              $
              8,943Investment
                  securities
              
              
              465
              
              
              605
              
              
              1,530
              
              
              1,918Federal
                  Home Loan Bank of New York stock
              
              
              30
              
              
              30
              
              
              84
              
              
              57Total
                  interest and dividend income
              
              
              6,119
              
              
              3,994
              
              
              16,881
              
              
              10,918Interest
                  expenseDeposits
              
              
              2,242
              
              
              1,137
              
              
              5,871
              
              
              2,953Borrowed
                  money
              
              
              458
              
              
              439
              
              
              1,391
              
              
              1,082Total
                  interest expense
              
              
              2,700
              
              
              1,576
              
              
              7,262
              
              
              4,035Net
                  interest and dividend income
              
              
              3,419
              
              
              2,418
              
              
              9,619
              
              
              6,883Provision
                  for loan losses
              
              
              240
              
              
              94
              
              
              600
              
              
              237Net
                  interest and dividend income after provisionfor
                  loan losses
              
              
              3,179
              
              
              2,324
              
              
              9,019
              
              
              6,646Other
                  incomeService
                  charges
              
              
              206
              
              
              128
              
              
              571
              
              
              390Other
                  operating income
              
              
              99
              
              
              49
              
              
              237
              
              
              151Gains
                  on sales of loans
              
              
              9
              
              
              -
              
              
              9
              
              
              -Losses
                  on the sale of securities
              
              
              (104
              )
              
              (6
              )
              
              (104
              )
              
              (6
              )Total
                  other income
              
              
              210
              
              
              171
              
              
              713
              
              
              535Other
                  expensesCompensation
                  and employee benefits
              
              
              1,825
              
              
              1,443
              
              
              5,183
              
              
              4,678Occupancy
                  expenses
              
              
              436
              
              
              279
              
              
              1,347
              
              
              861Advertising
              
              
              58
              
              
              96
              
              
              263
              
              
              218Professional
                  fees
              
              
              180
              
              
              116
              
              
              518
              
              
              237Service
                  fees
              
              
              112
              
              
              97
              
              
              329
              
              
              281Contribution
                  to charitable foundation
              
              
              -
              
              
              -
              
              
              1,547
              
              
              -Other
                  expenses
              
              
              380
              
              
              308
              
              
              1,060
              
              
              856Total
                  other expenses
              
              
              2,991
              
              
              2,339
              
              
              10,247
              
              
              7,131Income
                  (loss) before income tax (benefit)
              
              
              398
              
              
              156
              
              
              (515
              )
              
              50Income
                  tax expense (benefit)
              
              
              122
              
              
              46
              
              
              (284
              )
              
              (18
              )Net
                  income (loss)
              
              $
              276
              
              $
              110
              
              $
              (231
              )
              $
              68Basic
                  earnings per share
              
              $
              0.05
              
              
              N/A
              
              
              N/A
              
              
              N/ASee
                  accompanying notes to consolidated financial statements.






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 2







**MAGYAR
                BANCORP, INC. AND SUBSIDIARY**CONSOLIDATED
                STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYFor
                the Nine Months Ended June 30, 2006 and 2005
                (Unaudited)(In
                Thousands, Except for Share
                Amounts)





AccumulatedCommon
                Stock
            
            Additional
            
            
            
            
            
            otherShares
            
            Par
            
            Paid-In
            
            Unearned
            
            Retained
            
            comprehensiveIssued
            
            Value
            
            Capital
            
            ESOP
                Shares
            
            earnings
            
            loss
            
            TotalBalance,
                September 30, 2004
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            23,436
            
            $
            (324
            )
            $
            23,112Net
                income for the nine months ended June 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            68
            
            
            -
            
            
            68Other
                comprehensive loss, net of reclassificationadjustments
                and taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (59
            )
            
            (59
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            9Balance,
                June 30, 2005
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            23,504
            
            $
            (383
            )
            $
            23,121Balance,
                September 30, 2005
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            24,996
            
            $
            (608
            )
            $
            24,388Issuance
                of common stock, net of offeringexpenses
                of $1.4 million
            
            
            5,923,742
            
            
            59
            
            
            25,771
            
            
            -
            
            
            -
            
            
            -
            
            
            25,830Common
                stock acquired by ESOP
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,306
            )
            
            -
            
            
            -
            
            
            (2,306
            )Allocation
                of ESOP stock
            
            
            -
            
            
            -
            
            
            7
            
            
            115
            
            
            -
            
            
            -
            
            
            122Net
                loss for the nine months ended June 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (231
            )
            
            -
            
            
            (231
            )Other
                comprehensive loss, net of reclassification
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -adjustments
                and taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (434
            )
            
            (434
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (665
            )Balance,
                June 30, 2006
            
            
            5,923,742
            
            $
            59
            
            $
            25,778
            
            $
            (2,191
            )
            $
            24,765
            
            $
            (1,042
            )
            $
            47,369




See
                  accompanying notes to consolidated financial
                  statements.








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 3




**MAGYAR
                  BANCORP, INC. AND SUBSIDIARY**CONSOLIDATED
                  STATEMENT OF CASH FLOWS(In
                  Thousands)For
                  the nine monthsended
                  June 30,2006
              
              2005(Unaudited)Operating
                  activitiesNet
                  income (loss)
              
              $
              (231
              )
              $
              68Adjustment
                  to reconcile net income to net cash provided by (used in)operating
                  activitiesContribution
                  of stock to charitable foundation
              
              
              1,047
              
              
              -Depreciation
                  expense
              
              
              742
              
              
              393Premium
                  amortization on investment securities, net
              
              
              126
              
              
              135Gains
                  on sale of premise and equipment
              
              
              -
              
              
              (4
              )Proceeds
                  from mortgage loan sales
              
              
              2,817
              
              
              -Provision
                  for loan losses
              
              
              600
              
              
              237Gains
                  on sale of loans
              
              
              (9
              )
              
              -Losses
                  on sale of investment securities
              
              
              104
              
              
              6Allocation
                  of ESOP shares
              
              
              122
              
              
              -Increase
                  in accrued interest receivable
              
              
              (460
              )
              
              (68
              )Increase
                  in bank owned life insurance
              
              
              (190
              )
              
              (128
              )Decrease
                  in other assets
              
              
              3,898
              
              
              500Increase
                  in accrued interest payable
              
              
              656
              
              
              139Increase
                  (decrease) in accounts payable and other liabilities
              
              
              (523
              )
              
              874Net
                  cash provided by operating activities
              
              
              8,699
              
              
              2,152Investing
                  activitiesNet
                  increase in loans receivable
              
              
              (60,392
              )
              
              (48,790
              )Purchases
                  of investment securities held to maturity
              
              
              -
              
              
              (2,015
              )Purchases
                  of investment securities available for sale
              
              
              (5,488
              )
              
              -Sales
                  of investment securities available for sale
              
              
              3,896
              
              
              3,103Proceeds
                  from maturities/calls of investment securities held to
                  maturity
              
              
              2,010
              
              
              3,010Proceeds
                  from maturities/calls of investment securities available for
                  sale
              
              
              2,518
              
              
              2,002Principal
                  repayments on investment securities held to maturity
              
              
              4,801
              
              
              5,288Principal
                  repayments on investment securities available for sale
              
              
              2,554
              
              
              3,795Purchases
                  of bank owned life insurance
              
              
              (3,570
              )
              
              -Purchases
                  of premises and equipment
              
              
              (2,626
              )
              
              (9,264
              )Net
                  proceeds on sale of premises and equipment
              
              
              -
              
              
              96Redemption
                  (purchase) of Federal Home Loan Bank of New York stock
              
              
              248
              
              
              (83
              )Net
                  cash used in investing activities
              
              
              (56,049
              )
              
              (42,858
              )Financing
                  activitiesNet
                  increase in deposits
              
              
              40,503
              
              
              35,107Net
                  proceeds from issuance of common stock
              
              
              24,782
              
              
              -Net
                  purchase of common stock for ESOP
              
              
              (2,306
              )
              
              -Net
                  increase in escrowed funds
              
              
              119
              
              
              196Proceeds
                  from long-term Federal Home Loan Bank of New York advances
              
              
              -
              
              
              9,698Repayments
                  of long-term Federal Home Loan Bank of New York advances
              
              
              (1,458
              )
              
              (879
              )Net
                  repayments of short-term Federal Home Loan Bank of New York
                  advances
              
              
              (4,400
              )
              
              (7,670
              )Proceeds
                  from securities sold under agreements to repurchase
              
              
              -
              
              
              3,000Repayments
                  of securities sold under agreements to repurchase
              
              
              (5,000
              )
              
              (2,500
              )Proceeds
                  (repayment) of loans payable
              
              
              (2,497
              )
              
              2,497Net
                  cash provided by financing activities
              
              
              49,743
              
              
              39,449Net
                  increase (decrease) in cash and cash equivalents
              
              
              2,393
              
              
              (1,257
              )Cash
                  and cash equivalents, beginning of year
              
              
              3,209
              
              
              4,975Cash
                  and cash equivalents, end of year
              
              
              5,602
              
              
              3,718Supplemental
                  disclosures of cash flow informationCash
                  paid forInterest
              
              $
              6,606
              
              $
              3,873Income
                  taxes
              
              $
              23
              
              $
              -See
                  accompanying notes to consolidated financial statements.






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 4








**MAGYAR
      BANCORP, INC. AND SUBSIDIARY**


Notes
      to
      Consolidated Financial Statements


(Unaudited)








NOTE
      A -
      ORGANIZATION





On
      January 23, 2006, Magyar Bank (the Bank) completed a reorganization involving
      a
      series of transactions by which the Bank’s corporate structure was changed from
      a mutual savings bank to the mutual holding company form of ownership. Magyar
      Bank became a New Jersey-chartered stock savings bank subsidiary of Magyar
      Bancorp, Inc., a Delaware-chartered
      mid-tier stock holding company (the
      Company) . Magyar
      Bancorp, Inc. owns 100% of the outstanding shares of common stock of Magyar
      Bank. Magyar Bancorp, Inc. is a majority-owned subsidiary of Magyar Bancorp,
      MHC, a New
      Jersey-chartered mutual holding company .





As
      a
      result of the reorganization and stock offering, Magyar
      Bancorp, MHC owns 3,200,450 shares, or 54.03%, of the outstanding shares of
      common stock of Magyar Bancorp, Inc. The remaining 2,723,292 shares, or 45.97%,
      are held by public stockholders, including a charitable foundation organized
      by
      the Bank. The gross offering proceeds from the sale were $27,233,000 and the
      net
      proceeds were $25,829,000 (including $1,047,000 in stock contributed to the
      charitable foundation). So long as Magyar Bancorp, MHC exists, it will be
      required to own a majority of the voting stock of Magyar Bancorp, Inc.





For
      a
      further discussion of the stock offering, see the Company's Prospectus,
      initially filed on December 12, 2005 with the Securities and Exchange Commission
      pursuant to Rule 424(b)(3) of the Rules and Regulations of the Securities Act
      of
      1933 (File Number 333-128392).





Two
      wholly owned, non-bank subsidiaries exist under Magyar Bank. Magyar Service
      Corporation, a New Jersey corporation, operates under the name Magyar Financial
      Services and receives commissions from annuity and life insurance sales referred
      to a licensed, non-bank financial planner. Hungaria Urban Renewal, LLC, a
      Delaware corporation, is a real-estate holding company whose only holding is
      Magyar Bank’s corporate headquarters in New Brunswick.





Magyar
      Bank is subject to regulations issued by the New Jersey Department of Banking
      and Insurance and the Federal Deposit Insurance Corporation. Magyar Bancorp,
      Inc. is subject to comprehensive regulation and examination by the Board of
      Governors of the Federal Reserve System and the New Jersey Department of Banking
      and Insurance.





NOTE
      B -
      BASIS OF PRESENTATION





The
      consolidated financial statements include the accounts of the Company, its
      wholly owned subsidiary Magyar Bank, and the Bank’s wholly-owned subsidiaries
      Magyar Service Corporation and Hungaria Urban Renewal, LLC (See Note J). All
      material intercompany transactions and balances have been eliminated. The
      Company prepares its financial statements on the accrual basis and in conformity
      with accounting principles generally accepted in the United States of America
      ("US GAAP"). The unaudited information furnished herein reflects all adjustments
      (consisting of normal recurring accruals) that are, in the opinion of
      management, necessary to a fair statement of the results for the interim periods
      presented.


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 5


Operating
      results for the three and nine months ended June 30, 2006 are not necessarily
      indicative of the results that may be expected for the year ending September
      30,
      2006.  The
      September 30, 2005 information has been derived from the audited consolidated
      financial statements at that date but does not include all of the information
      and footnotes required by US GAAP for complete financial
      statements.





The
      preparation of financial statements in conformity with US GAAP requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent
      assets and liabilities at the date of the financial statements and the reported
      amounts of income and expenses during the reporting period. Actual results
      could
      differ from those estimates. Material estimates that are particularly
      susceptible to significant change in the near term relate to the determination
      of the allowance for loan losses.





NOTE
      C -
      CONTINGENCIES





The
      Company, from time to time, is a party to routine litigation that arises in
      the
      normal course of business. In the opinion of management, the resolution of
      this
      litigation, if any, would not have a material adverse effect on the Company’s
      consolidated financial position or results of operations.





NOTE
      D -
      EARNINGS PER SHARE





Basic
      earnings per share for the three months ended June 30, 2006 was calculated
      by
      dividing net income by the weighted-average number of shares outstanding for
      the
      period. Earnings per share was not meaningful for the nine month period ended
      June 30, 2006, as the Company did not have publicly held shares outstanding
      during each day of the period. Earnings per share was not meaningful for the
      three and nine months ended June 30, 2005, as the Company had no publicly held
      shares during the periods.





NOTE
      E -
      STOCK-BASED COMPENSATION





The
      Company had no stock-based compensation as of June 30, 2006, except as described
      below.





The
      Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of
      employees who meet the eligibility requirements as defined in the plan. The
      ESOP
      trust purchased 217,863 shares of common stock in the open market using proceeds
      of a loan from the Company. The total cost of shares purchased by the ESOP
      trust
      was $2.3 million, reflecting an average cost per share of $10.58. The Bank
      will
      make cash contributions to the ESOP on an annual basis sufficient to enable
      the
      ESOP to make the required loan payments to the Company. The loan bears a
      variable interest rate equal to Prime (currently 8.25%) with principal and
      interest payable annually in equal installments over thirty years. The loan
      is
      secured by the shares of the stock purchased.





As
      the
      debt is repaid, shares are released as collateral and allocated to qualified
      employees. Accordingly, the shares pledged as collateral are reported as
      unearned ESOP shares in the Consolidated Balance Sheet. The Company accounts
      for
      its ESOP in accordance with Statement of Position (“SOP”) 93-6, “Employer’s
      Accounting for Employee Stock Ownership Plans”, issued by the Accounting
      Standards Division of the American Institute of Certified Public Accountants
      (“AICPA”). As shares are released from collateral, the Company reports
      compensation expense equal to the current market price of the shares, and the
      shares become outstanding for earnings per share computations. The Company's
      contribution expense for the ESOP was $62,000 and $122,000 for the three and
      nine months ended June 30, 2006.


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 6


The
      following table presents the components of the ESOP shares:





2006Shares
                released for allocation
            
            
            -Unreleased
                shares
            
            
            217,863Total
                ESOP shares
            
            
            217,863








NOTE
      F -
      COMPREHENSIVE INCOME





SFAS
      No.
      130, “Reporting Comprehensive Income,” established standards for reporting
      comprehensive income, which includes net income as well as certain other items
      that result in a charge to equity during the period.





The
                income tax effects allocated to other comprehensive loss are as follows
                (in thousands):





Three
                Months Ended
            
            Nine
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005(Unaudited)
            
            (Unaudited)Other
                comprehensive loss:Unrealized
                holding gains (losses) onavailable-for-sale
                securities
            
            $
            (3
            )
            $
            319
            
            $
            (44
            )
            $
            (101
            )Unrealized
                holding loss on interestrate
                floors
            
            
            (20
            )
            
            -
            
            
            (70
            )
            
            -Minimum
                pension liability
            
            
            -
            
            
            -
            
            
            (650
            )
            
            -Net
                unrealized losses
            
            
            (23
            )
            
            319
            
            
            (764
            )
            
            (101
            )Income
                tax benefit
            
            
            1
            
            
            (134
            )
            
            330
            
            
            42Net
                of tax amount
            
            $
            (22
            )
            $
            185
            
            $
            (434
            )
            $
            (59
            )








NOTE
      G -
      INVESTMENT SECURITIES





The
      following table sets forth the composition of our securities portfolio at June
      30, 2006 and September 30, 2005 (in thousands):


June
                30, 2006
            
            September
                30, 2005Amortized
            
            Fair
            
            Amortized
            
            Faircost
            
            value
            
            cost
            
            value(Unaudited)Available
                for saleU.S.
                government and agency obligations
            
            $
            2,050
            
            $
            1,991
            
            $
            4,000
            
            $
            3,894Equity
                securities
            
            
            142
            
            
            142
            
            
            142
            
            
            142Mortgage-backed
                securities
            
            
            15,342
            
            
            14,770
            
            
            17,047
            
            
            16,566Total
            
            $
            17,534
            
            $
            16,903
            
            $
            21,189
            
            $
            20,602Held
                to maturityU.S.
                government and agency obligations
            
            $
            4,297
            
            $
            4,227
            
            $
            4,313
            
            $
            4,266Corporate
                notes
            
            
            -
            
            
            -
            
            
            2,001
            
            
            2,015Mortgage-backed
                securities
            
            
            23,106
            
            
            22,285
            
            
            27,955
            
            
            27,572Total
            
            $
            27,403
            
            $
            26,512
            
            $
            34,269
            
            $
            33,853





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 7





NOTE
      H -
      LOANS RECEIVABLE, NET





Loans
      receivable, net at June 30, 2006 and September 30, 2005 were comprised of the
      following (in thousands):


At
                June 30, 2006
            
            At
                September 30, 2005(Unaudited)One-to-four
                family residential
            
            $
            138,699
            
            $
            126,269Commercial
                real estate
            
            
            66,067
            
            
            57,366Construction
            
            
            76,233
            
            
            44,418Home
                equity lines of credit
            
            
            8,547
            
            
            10,398Commercial
                business
            
            
            24,185
            
            
            17,413Other
            
            
            14,697
            
            
            14,862Total
                loans receivable
            
            
            328,428
            
            
            270,726Deferred
                loan costs (fees)
            
            
            (413
            )
            
            (280
            )Allowance
                for loan losses
            
            
            (3,714
            )
            
            (3,129
            )Total
                loans receivable, net
            
            $
            324,301
            
            $
            267,317





At
      June
      30, 2006 and September 30, 2005, non-accrual loans had a total principal balance
      of approximately $419,000 and $577,000, respectively.








NOTE
      I -
      DEPOSITS





A
                summary of deposits by type of account are summarized as follows
                (in
                thousands):





At
                June 30, 2006
            
            At
                September 30, 2005(Unaudited)Demand
            
            $
            19,144
            
            $
            14,566Passbook
                savings
            
            
            47,721
            
            
            53,819Regular
                NOW accounts
            
            
            32,230
            
            
            28,149Money
                market NOW accounts
            
            
            47,289
            
            
            30,499Certificates
                of deposit
            
            
            147,104
            
            
            126,165IRA
            
            
            25,104
            
            
            24,892$
            318,592
            
            $
            278,090













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 8








NOTE
      J -
      PREMISES AND EQUIPMENT





Premises
                and equipment consisted of the following (in
                thousands):





Estimated
            
            At
                June 30,
            
            At
                September 30,useful
                lives
            
            2006
            
            2005(Unaudited)Land
            
            Indefinite
            
            $
            2,605
            
            $
            2,605Buildings
                and improvements
            
            10-40
                years
            
            
            18,647
            
            
            14,427Construction
                in progress
            
            10-40
                years
            
            
            -
            
            
            1,934Furniture,
                fixtures and equipment
            
            3-10
                years
            
            
            2,860
            
            
            2,51924,112
            
            
            21,485Less
                accumulated depreciation
            
            
            
            
            (2,765
            )
            
            (2,022
            )$
            21,347
            
            $
            19,463





For
      the
      nine months ended June 30, 2006 and 2005, depreciation expense included in
      occupancy expense amounted to approximately $743,000 and $393,000,
      respectively.





The
      Bank
      completed an IRC “Section 1031 Exchange” of like-kind property on January 24,
      2006. The purpose of the exchange was to defer the capital gains tax otherwise
      attributable to the sale of relinquished commercial real estate. The property
      relinquished by the Bank consisted of its old main office building located
      at
      101 French Street, New Brunswick, New Jersey. The Bank identified 400 Somerset
      Street, New Brunswick, New Jersey as the replacement property, which was
      acquired and developed by a qualified intermediary operating as Hungaria Urban
      Renewal, LLC.





Hungaria
      Urban Renewal, LLC was formed in 2002 and its sole purpose was to purchase
      the
      land and construct the office building for which the Bank would be the primary
      tenant. The Bank had made loans to this entity during 2003 and 2004 to finance
      the purchase of the land and begin construction of the building. During the
      period of construction, the Bank had leased the land and building from the
      entity. The lease payments were structured to equal the debt service on the
      loans plus a nominal fee. The lease agreement contained an irrevocable purchase
      option allowing the Bank to purchase the land and building from this entity
      for
      the aggregated outstanding indebtedness. In conjunction with the completion
      of
      the exchange, the Bank acquired a 100% interest in Hungaria Urban Renewal,
      LLC,
      which is engaged in no other business other than owning the Bank’s main office
      site. At June 30, 2006, Hungaria Urban Renewal, LLC accounted for $2,605,000,
      $13,526,000, and $1,024,000 of land, building, and furniture, fixtures and
      equipment, respectively.





Although
      the exchange was not completed until January 2006, the Bank previously
      identified Hungaria Urban Renewal, LLC as a variable interest entity, as defined
      by Financial Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
      Interest Entities,” and its subsequent amendment, FIN 46-R. As the primary
      beneficiary to this entity, the Bank included the variable interest entity
      in
      the consolidated financial statements beginning October 1, 2004. At September
      30, 2005, Hungaria Urban Renewal, LLC accounted for $2,605,000, $10,446,000,
      $1,934,000, and $987,000 of land, building, construction in progress and
      furniture, fixtures and equipment, respectively.





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 9







NOTE
      K -
      FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK





The
      Bank
      is a party to financial instruments with off-balance-sheet risk in the normal
      course of business to meet the financing needs of its customers. These financial
      instruments are commitments to extend credit. Those instruments involve, to
      varying degrees, elements of credit and interest rate risk in excess of the
      amounts recognized in the balance sheets.





June
                30,
            
            September
                30,2006
            
            2005Financial
                instruments whose contract amounts
            
            (Unaudited)represent
                credit risk (in thousands):Unused
                lines of credit
            
            $
            31,518
            
            $
            29,687Fixed
                rate loan commitments
            
            $
            5,109
            
            $
            1,983Variable
                rate loan commitments
            
            $
            12,427
            
            $
            8,745Letters
                of credit
            
            $
            556
            
            $
            202





NOTE
      L -
      PENSION PLAN





Net
      pension cost for the nine months ended June 30, 2006 and 2005 included the
      following components (in thousands):




June
                30,2006
            
            2005(Unaudited)Service
                cost benefits earned during the period
            
            $
            48
            
            $
            115Effect
                of plan curtailment
            
            
            161
            
            
            -Interest
                cost on projected benefit obligation
            
            
            142
            
            
            128Expected
                return on plan assets
            
            
            (114
            )
            
            (105
            )Amortization
                of transitional obligation
            
            
            1
            
            
            2Amortization
                of unrecognized loss
            
            
            60
            
            
            52Amortization
                of unrecognized past service liability
            
            
            9
            
            
            17Total
            
            $
            307
            
            $
            209





The
      employer contribution for the nine months ended June 30, 2006 and 2005 was
      $156,000 and $48,000, respectively.





On
      January 26, 2006, the Board of Directors voted to freeze future benefits payable
      under the Bank’s defined benefit pension plan. Accordingly, the annual benefit
      provided to Bank employees was amended to eliminate future benefit accruals
      on
      February 15, 2006.





In
      accordance with Statement of Financial Accounting Standards No. 88 (SFAS No.88)
      “Employers’ Accounting for Settlements and Curtailments of Defined Benefit
      Pension Plans and for Termination Benefits,” the Bank immediately recognized the
      unrecognized prior service costs associated with years of service no longer
      expected to be rendered as the result of a curtailment. The Bank incurred a
      charge of $161,000 in the nine month period ended June 30, 2006 for such prior
      service costs that were previously being deferred over the plan’s amortization
      period.


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 10







ITEM
      2 - Management's Discussion and Analysis of Financial Condition
      and Results of Operations





**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 advise
      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.




**Overview**





Magyar
      Bancorp, Inc. is a Delaware-chartered mid-tier stock holding company whose
      most
      significant business activity is operating Magyar Bank. Magyar Bank’s principal
      business is attracting retail deposits from the general public and investing
      those deposits, together with funds generated from operations, principal
      repayments on loans and securities and borrowed funds, into one-to-four family
      residential mortgage loans, multi-family and commercial real estate mortgage
      loans and construction loans. Our results of operations depend primarily on
      our
      net interest income which is the difference between the interest we earn on
      our
      interest-earning assets and the interest we pay on our interest-bearing
      liabilities. Our net interest income is primarily affected by the market
      interest rate environment, the shape of the U.S. Treasury yield curve, the
      timing of the placement of interest-earning assets and interest-bearing
      liabilities, and the prepayment rate on our mortgage-related assets. Other
      factors which may affect our results of operations are general and local
      economic and competitive conditions, government policies and actions of
      regulatory authorities.





In
      connection with the completion of our initial public stock offering on
      January 23, 2006, Magyar Bancorp, Inc. sold 2,618,550 shares of common
      stock, or 44.2% of its outstanding common stock, at a price of $10.00 per share,
      to subscribers in the offering. Magyar Bancorp, MHC, the Company’s New
      Jersey-chartered mutual holding company parent, holds 3,200,450 shares, or
      54.03%, of the Company’s outstanding common stock. The Company also contributed
      $500,000 in cash and issued 104,742 shares of common stock, or 1.77% of its
      outstanding shares, to the Magyar Bank Charitable Foundation. Net proceeds
      from
      the initial offering were $25.8 million (including $1.0 million in stock 
contributed to the charitable foundation) of which the Company contributed
      $12.4 million to Magyar Bank.


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 11







During
      the nine months ended June 30, 2006, we grew net loans $57.0 million, or 21.3%,
      over September 30, 2005. We attribute this growth to our continued focus on
      originating commercial, construction, and residential mortgage loans. Deposits
      grew $40.5 million, or 14.6%, from September 30, 2005 to June 30, 2006. We
      attribute this growth to the attractiveness of our promotional certificates
      of
      deposit and money market accounts as well as the expansion of our commercial
      relationships, which tend to hold larger deposit balances.





We
      reported net income (loss) of $276,000 and ($231,000) for the three and nine
      months ended June 30, 2006, respectively, compared to net income of $110,000
      and
      $68,000 for the three and nine months ended June 30, 2005, respectively. Net
      income in 2006 was adversely affected by a $1.5 million pre-tax charitable
      contribution we made to the MagyarBank Charitable Foundation. The contribution
      expense was partially offset by an increase in net interest income, resulting
      from higher yields on assets, which more than offset the increased cost of
      funding.





Our
      net
      interest margin increased to 3.76% and 3.58% for the three and nine month
      periods ended June 30, 2006, respectively, compared to 3.38% and 3.31% for
      the
      three and nine month periods ended June 30, 2005, respectively. We attribute
      this increase to both the growth in our loan portfolio, specifically in
      Prime-based loans, and the capital we raised in the stock offering. Meanwhile,
      our net interest spread increased to 3.46% and 3.31% for the three and nine
      months ended June 30, 2006, respectively, from 3.28% and 3.19% for the three
      and
      nine months ended June 30, 2005, respectively.





Throughout
      2006 we expect to continue with our strategy of diversifying the Company’s
      balance sheet with higher concentrations in commercial and construction
      loans.





**Comparison
      of Financial Condition at June 30, 2006 and September 30,
      2005**





Total
      assets increased $51.0 million, or 14.2%, to $410.7 million at June 30, 2006
      from $359.7 million at September 30, 2005, 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 $57.0 million, or 21.3%, to $324.3 million at June 30,
      2006
      from $267.3 million at September 30, 2005. The increase in loans receivable
      for
      the nine month period was limited by $2.8 million in sales of one-to-four family
      residential mortgage loans and provisions for loan loss of $600,000. During
      the
      nine months ended June 30, 2006, construction loans led the increase in net
      loans receivable with growth of 71.6% or $31.8 million to $76.2 million from
      $44.4 million at September 30, 2005. Commercial business loans increased $6.8
      million, or 38.9%, and one-to-four family residential mortgage loans increased
      $12.4 million, or 9.8%, during the period to $24.2 million and $138.7
      million, respectively.





At
      June
      30, 2006, the significant loan categories in terms of the percent of total
      loans
      were 42.2% in one-to-four family residential mortgage loans, 23.2% in
      construction loans and 20.1% in commercial real estate loans. The recent
      expansion of our construction lending department led to an increase in the
      percentage of construction loans from 16.4% to 23.2% over the nine month period
      ended June 30, 2006.





The
      Bank’s interest in loans on the Dwek Properties and Sugar Maple Estates
      (reported on in the Company’s Current Report on Form 8-K dated June 27, 2006)
      remained at $721,000 and $4.2 million,


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 12


respectively,
      at June 30, 2006. Payments on both loans were current at June 30, 2006 and
      as
      such, no reserve for uncollected interest had been established for the period.
      The loans have been classified by management as “Special Mention” and a portion
      of the existing reserves for loan loss equal to 5% of the principal outstanding
      on the loans has been allocated. Although the Bank believes that these 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.





Total
      non-performing loans, defined as non-accruing loans, decreased by $158,000
      to
      $419,000 at June 30, 2006 from $577,000 at September 30, 2005. The ratio of
      non-performing loans to total loans was 0.13% at June 30, 2006 compared with
      0.21% at September 30, 2005. The allowance for loan losses was $3.7 million
      or 886.4% of non-performing loans at June 30, 2006 compared with
      $3.1 million or 542.3% of non-performing loans at September 30, 2005. The
      allowance for loan losses was 1.1% of gross loans outstanding at June 30, 2006,
      as compared to $2.5 million, or 1.1% of gross loans outstanding at June 30,
      2005.





Securities
      available-for-sale decreased $3.7 million, or 18.0%, to $16.9 million at June
      30, 2006 from $20.6 million at September 30, 2005. The decrease was the result
      of $3.9 million in sales of fixed-rate, mortgage-backed securities, $2.6 million
      in principal amortization and $2.5 million in maturities of mortgage-backed
      securities, offset by $5.5 million in purchases of mortgage-backed and
      investment securities. In addition, securities held-to-maturity decreased $6.9
      million, or 20.0%, to $27.4 million at June 30, 2006 from $34.3 million at
      September 30, 2005, resulting from $4.8 million in principal amortization and
      $2.0 million in maturities. The decrease in the available for sale and held
      to
      maturity securities reflected the deployment of investment proceeds into new
      higher-yielding loans.





Bank-owned
      life insurance increased $3.8 million, or 64.7% to $9.6 million at June 30,
      2006
      from $5.8 million at September 30, 2005. The increase was the result of $3.6
      million in additional purchases and a $190,000 increase in the cash surrender
      value of existing policies.





Total
      deposits increased $40.5 million, or 14.6%, to $318.6 million at June 30, 2006.
      The increase was primarily the result of certificates of deposit, which
      increased $20.9 million, or 16.6%, to $147.1 million at June 30, 2006 from
      $126.2 million at September 30, 2005, and money market accounts, which increased
      $16.8 million, or 55.0%, to $47.3 million at June 30, 2006 from $30.5 million
      at
      September 30, 2005. Other significant changes in total deposits over the nine
      month period included an increase in demand accounts of $4.6 million, or 31.4%,
      to $19.1 million and an increase in NOW accounts of $4.1 million, or 14.5%,
      to
      $32.2 million.




Borrowings
      from the Federal Home Loan Bank of New York (FHLBNY) decreased $10.9 million,
      or
      22.2% to $38.0 million at June 30, 2006 from $48.9 million at September 30,
      2005. Proceeds from the growth in deposits described above were used to pay
      down
      $5.9 million in FHLBNY advances and $5.0 million in securities sold under
      agreements to repurchase over the nine month period.





Stockholders’
      equity increased $23.0 million, or 94.2%, to $47.4 million at June 30, 2006
      from
      $24.4 million at September 30, 2005. The increase was attributable to a net
      increase in capital (net of stock acquired by the ESOP) of $23.6 million in
      connection with the Company's initial public offering, net losses of $231,000,
      and an increase in accumulated other comprehensive loss of $434,000. The other
      comprehensive losses due to unrealized losses on securities available-for-sale
      relate to increases in interest rates since the securities were purchased.
      Management has concluded that none of the securities have impairments that
      are
      considered other than temporary.


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 13








**Average
      Balance Sheets for the Three and Nine Months Ended June 30, 2006 and
      2005**





The
      tables on the following pages present certain information regarding Magyar
      Bancorp, Inc.’s financial condition and net interest income for the three months
      and nine months ended June 30, 2006 and 2005. The tables present 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.





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 14


**MAGYAR
                  BANCORP, INC. AND SUBSIDIARY**Comparative
                  Average Balance Sheets(In
                  Thousands)For
                  the Three Months Ended June 30,2006
              
              2005**Average
                  Balance**
              
              **Interest
                  Income/**
                **Expense**
              
              **Yield/
                  Cost**
              
              **Average
                  Balance**
              
              **Interest
                  Income/**
                **Expense**
              
              **Yield/
                  Cost****Interest-earning
                  assets:**Loans
              
              $
              314,338
              
              $
              5,624
              
              
              7.18
              %
              $
              222,139
              
              $
              3,359
              
              
              6.07
              %Securities
              
              
              50,168
              
              
              491
              
              
              3.93
              %
              
              63,820
              
              
              626
              
              
              3.93
              %Other
                  interest-earning assets
              
              
              341
              
              
              4
              
              
              4.69
              %
              
              1,323
              
              
              9
              
              
              2.72
              %Total
                  interest-earning assets
              
              
              364,847
              
              
              6,119
              
              
              6.73
              %
              
              287,282
              
              
              3,994
              
              
              5.58
              %Noninterest-earning
                  assets
              
              
              38,679
              
              
              
              
              
              
              
              
              29,176Total
                  assets
              
              $
              403,526
              
              
              
              
              
              
              
              $
              316,458**Interest-bearing
                  liabilities:**Savings
                  accounts (1)
              
              $
              51,324
              
              
              159
              
              
              1.24
              %
              $
              51,772
              
              
              84
              
              
              0.65
              %NOW
                  accounts (2)
              
              
              68,524
              
              
              432
              
              
              2.53
              %
              
              57,036
              
              
              160
              
              
              1.13
              %Time
                  deposits (3)
              
              
              172,549
              
              
              1,651
              
              
              3.84
              %
              
              125,920
              
              
              893
              
              
              2.84
              %Total
                  interest-bearing deposits
              
              
              292,397
              
              
              2,242
              
              
              3.08
              %
              
              234,728
              
              
              1,137
              
              
              1.94
              %Federal
                  Home Loan Bank borrowings
              
              
              38,673
              
              
              458
              
              
              4.75
              %
              
              38,576
              
              
              416
              
              
              4.33
              %Loan
                  payable
              
              
              -
              
              
              -
              
              
              
              
              
              1,372
              
              
              23
              
              
              6.72
              %Total
                  interest-bearing liabilities
              
              
              331,070
              
              
              2,700
              
              
              3.27
              %
              
              274,676
              
              
              1,576
              
              
              2.30
              %Noninterest-bearing
                  liabilities
              
              
              24,761
              
              
              
              
              
              
              
              
              16,643Total
                  liabilities
              
              
              355,831
              
              
              
              
              
              
              
              
              291,319Retained
                  earnings
              
              
              47,695
              
              
              
              
              
              
              
              
              25,139Total
                  liabilities and retained earnings
              
              $
              403,526
              
              
              
              
              
              
              
              $
              316,458Net
                  interest income
              
              
              
              
              $
              3,419
              
              
              
              
              
              
              
              $
              2,418Interest
                  rate spread
              
              
              
              
              
              
              
              
              3.46
              %
              
              
              
              
              
              
              
              3.28
              %Net
                  interest-earning assets
              
              $
              33,777
              
              
              
              
              
              
              
              $
              12,606Net
                  interest margin
              
              
              
              
              
              
              
              
              3.76
              %
              
              
              
              
              
              
              
              3.38
              %Average
                  interest-earning assets to average interest-bearing liabilities
              
              
              110.20
              %
              
              
              
              
              
              
              
              104.59
              %


(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






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 15


**MAGYAR
                  BANCORP, INC. AND SUBSIDIARY**Comparative
                  Average Balance Sheets(In
                  Thousands)For
                  the Nine Months Ended June 30,2006
              
              2005**Average
                  Balance**
              
              **Interest
                  Income/**
                **Expense**
              
              **Yield/
                  Cost**
              
              **Average
                  Balance**
              
              **Interest
                  Income/**
                **Expense**
              
              **Yield/
                  Cost****Interest-earning
                  assets:**Loans
              
              $
              303,658
              
              $
              15,267
              
              
              6.72
              %
              $
              208,192
              
              $
              8,943
              
              
              5.74
              %Securities
              
              
              52,480
              
              
              1,513
              
              
              3.85
              %
              
              67,189
              
              
              1,959
              
              
              3.90
              %Other
                  interest-earning assets
              
              
              3,178
              
              
              101
              
              
              4.24
              %
              
              2,442
              
              
              16
              
              
              0.85
              %Total
                  interest-earning assets
              
              
              359,316
              
              
              16,881
              
              
              6.28
              %
              
              277,823
              
              
              10,918
              
              
              5.26
              %Noninterest-earning
                  assets
              
              
              28,495
              
              
              
              
              
              
              
              
              21,788Total
                  assets
              
              $
              387,811
              
              
              
              
              
              
              
              $
              299,611**Interest-bearing
                  liabilities:**Savings
                  accounts (1)
              
              $
              59,319
              
              
              492
              
              
              1.11
              %
              $
              50,880
              
              
              212
              
              
              0.55
              %NOW
                  accounts (2)
              
              
              63,839
              
              
              973
              
              
              2.04
              %
              
              57,945
              
              
              433
              
              
              1.00
              %Time
                  deposits (3)
              
              
              163,939
              
              
              4,406
              
              
              3.59
              %
              
              117,516
              
              
              2,308
              
              
              2.62
              %Total
                  interest-bearing deposits
              
              
              287,097
              
              
              5,871
              
              
              2.73
              %
              
              226,341
              
              
              2,953
              
              
              1.74
              %Federal
                  Home Loan Bank borrowings
              
              
              38,492
              
              
              1,327
              
              
              4.61
              %
              
              34,283
              
              
              1,059
              
              
              4.12
              %Loan
                  payable
              
              
              1,079
              
              
              64
              
              
              7.93
              %
              
              458
              
              
              23
              
              
              6.72
              %Total
                  interest-bearing liabilities
              
              
              326,668
              
              
              7,262
              
              
              2.97
              %
              
              261,082
              
              
              4,035
              
              
              2.07
              %Noninterest-bearing
                  liabilities
              
              
              23,873
              
              
              
              
              
              
              
              
              15,290Total
                  liabilities
              
              
              350,541
              
              
              
              
              
              
              
              
              276,372Retained
                  earnings
              
              
              37,270
              
              
              
              
              
              
              
              
              23,239Total
                  liabilities and retained earnings
              
              $
              387,811
              
              
              
              
              
              
              
              $
              299,611Net
                  interest income
              
              
              
              
              $
              9,619
              
              
              
              
              
              
              
              $
              6,883Interest
                  rate spread
              
              
              
              
              
              
              
              
              3.31
              %
              
              
              
              
              
              
              
              3.19
              %Net
                  interest-earning assets
              
              $
              32,648
              
              
              
              
              
              
              
              $
              16,741Net
                  interest margin
              
              
              
              
              
              
              
              
              3.58
              %
              
              
              
              
              
              
              
              3.31
              %Average
                  interest-earning assets to average interest-bearing liabilities
              
              
              109.99
              %
              
              
              
              
              
              
              
              106.41
              %




(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






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 16




**Comparison
      of Operating Results for the Three Months Ended June 30, 2006 and
      2005**





***Net
      Income*** .
      The
      Company recorded net income of $276,000 for the three months ended June 30,
      2006
      compared to net income of $110,000 for the prior year period.





***Net
      Interest and Dividend Income.*** Net
      interest and dividend income increased $1.0 million, or 41.4%, to $3.4
      million for the three months ended June 30, 2006 from $2.4 million for the
      three months ended June 30, 2005. Total interest and dividend income increased
      $2.1 million to $6.1 million for the three month period ended June 30, 2006
      while total interest expense increased $1.1 million to $2.7 million for the
      same
      three month period one year earlier. In addition, our interest rate spread
      improved to 3.46% from 3.31%.





***Interest
      Income.*** The
      increase in ** interest
      income of $2.1 million, or 53.2%, to $6.1 million for the three months ended
      June 30, 2006 was primarily due to an increase in the average balance of
      interest-earning assets of $77.6 million to $364.8 million from $287.3 million,
      as well as an improvement in the average yield on such assets to 6.73% from
      5.58%. Interest earned on loans increased to $5.6 million for the three months
      ended June 30, 2006 from $3.4 million for the prior year period, reflecting
      a
      $92.2 million, or 41.5%, increase in the average balance of loans as well as
      a
      111 basis point increase in the average yield on such loans to 7.18% from 6.07%.
      The improved yield on loans reflected the higher balance of higher-yielding
      commercial business, commercial real estate and construction loans, as well
      as
      an overall higher interest rate environment.





Interest
      earned on our investment securities, which includes Federal Home Loan Bank
      of
      New York stock, decreased $140,000, or 23.1%, due to a $13.7 million, or 21.4%,
      decrease in the average balance of such securities. The average yield on such
      securities remained unchanged between the two periods at 3.93%. 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 $1.1 million, or 71.3%, to $2.7 million for the three months
      ended June 30, 2006 from $1.6 million for the three months ended June 30, 2005.
      The increase in interest expense was primarily due to a $56.4 million, or 20.5%,
      increase in the average balance of interest-bearing liabilities to $331.1
      million from $274.7 million. In addition, the average cost of such liabilities
      increased to 3.27% from 2.30% in the higher market interest rate environment.





The
      average balance of interest bearing deposits increased to $292.4 million from
      $234.7 million while the average cost of such deposits increased to 3.08% from
      1.94% in the higher market interest rate environment. This resulted in an
      increase in interest paid on deposits from $1.1 million to $2.2 million for
      the
      three months ended June 30, 2006 compared to the same period last year. Interest
      paid on Federal Home Loan Bank advances increased to $458,000 for the three
      months ended June 30, 2006 from $416,000 for the prior year period. In addition
      to an increase in the average balance of such advances from $38.6 million to
      $38.7 million was a 42 basis point increase in the average cost of Federal
      Home
      Loan Bank advances to 4.75% for the three months ended June 30, 2006 from 4.33%
      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


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 17


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 made a provision of $240,000 for the
      three months ended June 30, 2006 compared to a $94,000 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 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 to $210,000 for the three months ended June 30, 2006 from
      $171,000 for the three months ended June 30, 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 June 30, 2006
      compared to the earlier three month period. Sales of $3.9 million in investment
      securities available-for-sale resulted in a loss of $104,000 during the three
      months ended June 30, 2006 compared with a net loss of $6,000 in the prior
      year
      period for the sale of $3.1 million in investment securities
      available-for-sale.





***Other
      Expenses.*** Non-interest
      expense increased to $3.0 million for the three months ended June 30, 2006
      from
      $2.3 million for the three months ended June 30, 2005.





Compensation
      and employee benefits increased $382,000, or 26.5% to $1.8 million from $1.4
      million for the three months ended June 30, 2006. This increase included $62,000
      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 $436,000 for the three months ended June 30, 2006 from $279,000
      for
      the prior year period. The increase primarily reflected depreciation of the
      Bank’s new corporate headquarters, which was completed in September 2005. In
      addition, professional fees increased $64,000, or 55.2%, to $180,000 for the
      three months ended June 30, 2006 from $116,000 for the same period last year
      primarily due to additional auditing and legal expenses associated with the
      reporting requirements of the Company as a publicly-traded entity.


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 18


***Income
      Tax Expense.***  Income
      tax expense was $122,000 for the three months ended June 30, 2006, as compared
      to $46,000 for the three months ended June 30, 2005. The effective tax rate
      was 30.7% and 29.5% for the three month periods ended June 30, 2006 and 2005,
      respectively.





**Comparison
      of Operating Results for the Nine Months Ended June 30, 2006 and
      2005**





***Net
      Loss.*** The
      net
      loss for the nine months ended June 30, 2006 was ($231,000) compared to net
      income of $68,000 for the nine months ended June 30, 2005. The current period
      loss included the expense of a $1.5 million contribution to the Magyar Bank
      Charitable Foundation as part of the Company’s initial public offering.





***Net
      Interest and Dividend Income.*** Net
      interest and dividend income increased $2.7 million, or 39.8%, to $9.6
      million for the nine months ended June 30, 2006 from $6.9 million for the
      nine months ended June 30, 2005. Total interest and dividend income increased
      $6.0 million to $16.9 million for the nine month period ended June 30, 2006
      while total interest expense increased $3.2 million to $7.3 million for the
      same
      nine month period. In addition, for the comparison period our interest rate
      spread increased 12 basis points to 3.31% from 3.19%.





***Interest
      Income.*** Interest
      income increased $6.0 million, or 54.7%, to $16.9 million for the nine months
      ended June 30, 2006 from $10.9 million for the same period last year. The
      increase in interest income was primarily due to an increase in the average
      balance of interest-earning assets of $81.5 million to $359.6 million from
      $277.8 million. In addition, there was an improvement of 102 basis points in
      the
      average yield on such assets to 6.28% from 5.26%. Interest income on loans
      increased 70.7% to $15.3 million for the nine months ended June 30, 2006 from
      $8.9 million for the prior year period, reflecting a $95.5 million, or 45.9%,
      increase in the average balance of loans as well as a 98 basis point increase
      in
      the average yield on such loans to 6.72% from 5.74%. The improved yield on
      loans
      reflected the larger balance of higher-yielding commercial business, commercial
      real estate and construction loans, as well as an overall higher interest rate
      environment.





Interest
      earned on investment securities decreased 20.2% to $1.5 million for the nine
      month period ended June 30, 2006 from $1.9 million a year earlier. The decrease
      was primarily due to a $14.7 million, or 21.9%, decrease in the average balance
      of such securities to $52.5 million from $67.2 million for the comparison
      period. The decreased average balance of our investment securities reflected
      the
      deployment of proceeds from investment prepayments or repayments into
      higher-yielding loans.





***Interest
      Expense.*** Interest
      expense increased $3.2 million, or 80.0%, to $7.3 million for the nine months
      ended June 30, 2006 from $4.0 million for the nine months ended June 30, 2005.
      The increase in interest expense was primarily due to a $65.6 million, or 25.1%,
      increase in the average balance of interest-bearing liabilities to $326.7
      million from $261.1 million. In addition, the average cost of such liabilities
      increased to 2.97% from 2.07% in the higher market interest rate environment.





The
      average balance of interest bearing deposits increased $60.8 million to $287.1
      million for the nine months ended June 30, 2006 from $226.3 million for the
      same
      period last year while the average cost of such deposits increased 99 basis
      points to 2.73% from 1.74%. This resulted in a 98.8% increase in interest paid
      on deposits from $3.0 million to $5.9 million for the nine months ended June
      30,
      2006 compared to the same period ended June 30, 2005. Interest paid on Federal
      Home Loan Bank advances increased $268,000 to $1.3 million for the nine months
      ended June 30, 2006 from $1.1 million for the prior year period. The increase
      in
      advance interest expense was due to an increase in the average balance of such
      advances from $34.3 million to $38.5 million combined with a 49 basis point
      increase in the average cost of Federal Home Loan Bank advances to 4.61% for
      the
      nine months ended June 30, 2006 from 4.12% for the prior year period. The
      proceeds from the increase in the balance deposits and advances were used to
      partially fund the increase in loans.


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 19








***Provision
      for Loan Losses.*** Management made a provision of $600,000 for the nine months ended June 30,
      2006
      compared with a $237,000 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 specifically the increase in the proportion
      of
      higher risk construction and commercial real estate loans in our portfolio.
      The
      allowance for loan losses increased to $3.7 million, or 1.1% of gross loans
      outstanding at June 30, 2006, from $2.5 million, or 1.1% of gross loans
      outstanding, at June 30, 2005.





***Other
      Income.*** Non-interest
      income increased $178,000 to $713,000 for the nine months ended June 30, 2006
      from $535,000 for the nine months ended June 30, 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 nine months ended June 30, 2006
      compared to the earlier nine month period. In addition, sales of $3.9 million
      in
      investment securities available-for-sale resulted in a loss of $104,000 during
      the nine months ended June 30, 2006 compared with a net loss of $6,000 in the
      prior year period for the sale of $3.1 million in investment securities
      available-for-sale.





***Other
      Expenses.*** Non-interest
      expense increased $3.1 million to $10.2 million for the nine months ended June
      30, 2006 from $7.1 million for the nine months ended June 30, 2005. Included
      with the 2006 expenses was a $1.5 million contribution to the Magyar Bank
      Charitable Foundation in conjunction with the Company’s initial public offering
      on January 23, 2006.





Compensation
      and employee benefits rose 10.8% or $505,000 to $5.2 million from $4.7 million.
      This increase included $122,000 in ESOP expenses recorded during the nine months
      ended June 30, 2006. In addition, the increase also reflects staff additions
      in
      our commercial real estate and retail banking areas, as well as normal merit
      increases and increases in employee benefit costs. We expect the addition of
      these positions will enable us to administer higher balances of loans and
      deposits.





Occupancy
      expense increased $486,000 or 56.4% to $1.3 million for the nine months ended
      June 30, 2006 from $861,000 for the prior year period. The increase primarily
      reflected depreciation of the Bank’s new corporate headquarters, which was
      completed in September 2005. Professional fees increased $281,000 to $518,000
      for the nine months ended June 30, 2006 from $237,000 for the same period last
      year primarily due to additional auditing and legal expenses associated with
      the
      reporting requirements of the Company as a publicly-traded entity.





***Income
      Tax Expense.*** The
      income tax benefit increased $266,000 to $284,000 for the nine month period
      ended June 30, 2006 from a tax benefit of $18,000 for the same period last
      year.
      The increase reflects the tax benefit associated with the contribution of $1.5
      million to the Magyar Bank Charitable Foundation. The effective tax rate was
      55.1% and 36.0% for the nine month periods ended June 30, 2006 and 2005,
      respectively. The difference in the effective tax rate in 2006 as compared
      to
      2005 is primarily a result of the relative percentage of the permanent
      differences as compared to pretax income.





**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 operation depend, and which involves the most complex subjective
      decisions or assessments, is the allowance for loan losses.




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 20






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 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 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.




**New
      Accounting Pronouncements**





In
      March
      2006, the Financial Accounting Standards Board (FASB) issued Statement
      No. 156 (SFAS 156), “Accounting for Servicing of Financial Assets.” SFAS
      156 amends SFAS No. 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities.” SFAS 156 permits, but does
      not require, an entity to choose either the amortization method or the fair
      value measurement method for measuring each class of separately recognized
      servicing assets and servicing liabilities. SFAS 156 is effective for fiscal
      years beginning after September 15, 2006 and is not expected to have
      a
      material impact on the Company’s consolidated financial
      statements. 
 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


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 21


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 and is currently under evaluation by the
      Company to determine the impact on the Company’s consolidated 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 nine month period
      ended June 30, 2006 in the ability of the Company and its subsidiaries to fund
      their operations.




At
      June
      30, 2006, the Company had commitments outstanding under letters of credit of
      $556,000,  commitments
      to originate loans of $17.5 million, and commitments to fund undisbursed
      balances of closed loans and unused lines of credit of $31.5 million. There
      has been no material change during the nine months ended June 30, 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 June
      30,
      2006.




**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




**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, 2005 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 $10 million and $15 million were purchased in the three
      and
      nine months ending June 30, 2006, respectively.


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Management
      of the Company believes that there has not been a material adverse change in
      market risk during the three or nine months ended June 30, 2006.








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ITEM
      3 -
      Controls and Procedures




An
      evaluation was performed under the supervision and with the
      participation of the Company’s management, including the Chief Executive Officer
      and Chief Financial Officer, of the effectiveness of the design and operation
      of
      the Company’s disclosure controls and procedures (as defined in
      Rule 13a-15(e) or 15d-15(e) promulgated under the Securities and Exchange
      Act of 1934, as amended) as of the end of the period covered by this report.
      Based on such evaluation, our Chief Executive Officer and Chief Financial
      Officer have concluded that our disclosure controls and procedures are designed
      to ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Securities Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      regulations and are operating in an effective manner.




No
      change
      in our internal controls over financial reporting (as defined in
      Rules 13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934)
      occurred during the most recent fiscal quarter that has materially affected,
      or
      is reasonably likely to materially affect, our internal control over financial
      reporting.




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PART
      II - OTHER INFORMATION





Item
      1.  Legal
      proceedings




There
      are no material pending legal proceedings to which the Company or
      its subsidiaries is a party other than ordinary routine litigation incidental
      to
      their respective businesses.




Item
      2.  Unregistered
      Sales of Equity Securities and Use of Proceeds




The
      Company sold no shares within the past three years that were not
      registered under the Securities Act. The Company completed its stock offering
      in
      a registered offering on January 23, 2006, raising $27.2 million in gross
      proceeds. The Company issued a total of 2,618,550 shares of its common stock
      to
      public shareholders, 3,200,450 shares of its common stock to its parent, Magyar
      Bancorp, MHC and 104,742 shares of its common stock to its charitable
      foundation. The net proceeds were $25.8 million, which include a $1.0 million
      stock contribution to the charitable foundation and settlement costs totaling
      $1.4 million. Ryan Beck & Co, Inc. was the selling agent for the offering.
      The Company anticipates deploying the offering proceeds in longer-term
      securities and new loans, although no assurance can be given that the Company
      will be able to effectively deploy the offering proceeds.




The
      Company’s registration statement (File No. 333-128392) was declared effective by
      the SEC on November 14, 2005. The Company registered 2,723,292 shares of its
      common stock for an aggregate price on the offering amount registered of
      $27,232,920.




Item
      3.  Defaults
      Upon Senior Securities




None




Item
      4.  Submission
      of Matters to a Vote of Security Holders




None




Item
      5.  Other
      Information




None




Item
      6.  Exhibits




Exhibits




31.1
            Certification
                of Chief Executive Officer Pursuant to
                Rule 13a-14(a)




31.2
            Certification
                of Chief Financial Officer Pursuant to
                Rule 13a-14(a)





32.1
            Certification
                of Chief Executive Officer Pursuant to 18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





32.2
            Certification
                of Chief Financial Officer Pursuant to 18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





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Signatures





Pursuant
      to the requirements of the Securities Exchange Act of 1934,
      the registrant has duly caused this report to be signed on its behalf by the
      undersigned thereunto duly authorized.








MAGYAR
                BANCORP, INC.(Registrant)Date:
                August 14, 2006
            /s/
                Elizabeth E. HanceElizabeth
                E. HancePresident
                and Chief Executive OfficerDate:
                August 14, 2006
            /s/
                Jon R. AnsariJon
                R. AnsariSenior
                Vice President and Chief Financial
                Officer











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