UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-QSB





þ
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


For the
quarterly period ended March 31, 2008





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 Incorporation or Organization)
            (I.R.S.
      Employer Identification Number)400 Somerset Street,
      New Brunswick, New Jersey
            08901(Address
      of Principal Executive Office)
            (Zip
      Code)








(732)
342-7600


(Issuer’s
Telephone Number including area code)











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     þ     No    o





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





Yes     o     No    þ





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 May 1, 2008Common
      Stock, $0.01 Par Value
            5,786,911





Transitional
Small Business Disclosure Format





Yes     o     No    þ











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 or Plan of
      Operation
            
            14Item 3.
            Controls and Procedures
            
            25PART II. OTHER INFORMATIONItem 1.
            Legal Proceedings
            
            26Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            26Item 3.
            Defaults Upon Senior Securities
            
            26Item 4.
            Submission of Matters to a Vote of Security
      Holders
            
            26Item 5.
            Other Information
            
            26Item 6.
            Exhibits
            
            27Signature Pages
            
            28














Table of Contents





PART I.
FINANCIAL INFORMATION





Item
1.  Financial Statements




MAGYAR
      BANCORP, INC. AND SUBSIDIARYConsolidated
      Balance Sheets(In
      Thousands, Except Share Data)March
      31,
                
                
                September
      30,2008
                
                
                2007(Unaudited)AssetsCash
                
                $
                4,282
                
                
                $
                5,132Interest
      earning deposits with banks
                
                
                163
                
                
                
                101Total
      cash and cash equivalents
                
                
                4,445
                
                
                
                5,233Investment
      securities - available for sale, at fair value
                
                
                45,944
                
                
                
                27,373Investment
      securities - held to maturity, at amortized cost (fair value of
      $10,933and
      $17,957 at March 31, 2008 and September 30, 2007,
      respectively)
                
                
                10,801
                
                
                
                18,116Federal
      Home Loan Bank of New York stock, at cost
                
                
                3,777
                
                
                
                2,325Loans
      receivable, net of allowance for loan losses of $4,064 and $3,754
      atMarch
      31, 2008 and September 30, 2007, respectively
                
                
                396,009
                
                
                
                381,614Bank
      owned life insurance
                
                
                10,330
                
                
                
                10,120Accrued
      interest receivable
                
                
                2,306
                
                
                
                2,521Premises
      and equipment, net
                
                
                21,883
                
                
                
                22,302Other
      real estate owned
                
                
                5,101
                
                
                
                2,238Other
      assets
                
                
                3,396
                
                
                
                1,335Total
      assets
                
                $
                503,992
                
                
                $
                473,177Liabilities
      and Stockholders' EquityLiabilitiesDeposits
                
                $
                361,928
                
                
                $
                368,777Escrowed
      funds
                
                
                1,257
                
                
                
                1,172Federal
      Home Loan Bank of New York advances
                
                
                72,263
                
                
                
                39,985Securities
      sold under agreements to repurchase
                
                
                15,000
                
                
                
                10,000Accrued
      interest payable
                
                
                1,277
                
                
                
                1,706Accounts
      payable and other liabilities
                
                
                2,938
                
                
                
                3,344Total
      liabilities
                
                
                454,663
                
                
                
                424,984Stockholders'
      equityPreferred
      stock: $.01 Par Value, 1,000,000 shares authorized; none
      issued
                
                
                -
                
                
                
                -Common
      stock: $.01 Par Value, 8,000,000 shares authorized;
    5,923,742issued;
      5,790,111 and 5,798,942 outstanding at March 31, 2008and
      September 30, 2007, respectively
                
                
                59
                
                
                
                59Additional
      paid-in capital
                
                
                25,990
                
                
                
                26,082Treasury
      stock 133,631 and 124,800 shares at March 31, 2008 andSeptember
      30, 2007, respectively
                
                
                (1,766
                )
                
                
                (1,740
                )Unearned
      shares held by Employee Stock Ownership Plan
                
                
                (1,687
                )
                
                
                (1,845
                )Retained
      earnings
                
                
                26,185
                
                
                
                25,717Accumulated
      other comprehensive gain (loss), net
                
                
                548
                
                
                
                (80
                )Total
      stockholders' equity
                
                
                49,329
                
                
                
                48,193Total
      liabilities and stockholders' equity
                
                $
                503,992
                
                
                $
                473,177The
      accompanying notes are an integral part of these
    statements.  1
 Table of Contents
 MAGYAR
      BANCORP, INC. AND SUBSIDIARYConsolidated
      Statements of Income(In
      Thousands, Except Per Share Data)For
      the Three Months
                  
                  
                  For
      the Six MonthsEnded
      March 31,
                  
                  
                  Ended
      March 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(Unaudited)Interest
      and dividend incomeLoans,
      including fees
                  
                  $
                  6,537
                  
                  
                  $
                  6,681
                  
                  
                  $
                  13,462
                  
                  
                  $
                  13,197Investment
      securitiesTaxable
                  
                  
                  541
                  
                  
                  
                  437
                  
                  
                  
                  1,145
                  
                  
                  
                  856Tax-exempt
                  
                  
                  33
                  
                  
                  
                  30
                  
                  
                  
                  66
                  
                  
                  
                  51Federal
      Home Loan Bank of New York stock
                  
                  
                  62
                  
                  
                  
                  56
                  
                  
                  
                  114
                  
                  
                  
                  100Total
      interest and dividend income
                  
                  
                  7,173
                  
                  
                  
                  7,204
                  
                  
                  
                  14,787
                  
                  
                  
                  14,204Interest
      expenseDeposits
                  
                  
                  2,954
                  
                  
                  
                  3,036
                  
                  
                  
                  6,337
                  
                  
                  
                  5,980Borrowings
                  
                  
                  750
                  
                  
                  
                  724
                  
                  
                  
                  1,416
                  
                  
                  
                  1,367Total
      interest expense
                  
                  
                  3,704
                  
                  
                  
                  3,760
                  
                  
                  
                  7,753
                  
                  
                  
                  7,347Net
      interest and dividend income
                  
                  
                  3,469
                  
                  
                  
                  3,444
                  
                  
                  
                  7,034
                  
                  
                  
                  6,857Provision
      for loan losses
                  
                  
                  391
                  
                  
                  
                  110
                  
                  
                  
                  614
                  
                  
                  
                  277Net
      interest and dividend income afterprovision
      for loan losses
                  
                  
                  3,078
                  
                  
                  
                  3,334
                  
                  
                  
                  6,420
                  
                  
                  
                  6,580Other
      incomeService
      charges
                  
                  
                  233
                  
                  
                  
                  195
                  
                  
                  
                  515
                  
                  
                  
                  409Other
      operating income
                  
                  
                  144
                  
                  
                  
                  114
                  
                  
                  
                  253
                  
                  
                  
                  231Gains
      on sales of loans
                  
                  
                  -
                  
                  
                  
                  10
                  
                  
                  
                  -
                  
                  
                  
                  12Losses
      on the sales of investment securities
                  
                  
                  (19
                  )
                  
                  
                  -
                  
                  
                  
                  (19
                  )
                  
                  
                  -Loss
      on the sale of other real estate owned
                  
                  
                  (37
                  )
                  
                  
                  -
                  
                  
                  
                  (88
                  )
                  
                  
                  -Total
      other income
                  
                  
                  321
                  
                  
                  
                  319
                  
                  
                  
                  661
                  
                  
                  
                  652Other
      expensesCompensation
      and employee benefits
                  
                  
                  2,249
                  
                  
                  
                  1,968
                  
                  
                  
                  4,312
                  
                  
                  
                  3,808Occupancy
      expenses
                  
                  
                  656
                  
                  
                  
                  617
                  
                  
                  
                  1,317
                  
                  
                  
                  1,208Advertising
                  
                  
                  65
                  
                  
                  
                  72
                  
                  
                  
                  128
                  
                  
                  
                  145Professional
      fees
                  
                  
                  174
                  
                  
                  
                  133
                  
                  
                  
                  317
                  
                  
                  
                  282Service
      fees
                  
                  
                  144
                  
                  
                  
                  127
                  
                  
                  
                  282
                  
                  
                  
                  249Other
      expenses
                  
                  
                  457
                  
                  
                  
                  531
                  
                  
                  
                  909
                  
                  
                  
                  960Total
      other expenses
                  
                  
                  3,745
                  
                  
                  
                  3,448
                  
                  
                  
                  7,265
                  
                  
                  
                  6,652Income
      (loss) before income tax expense (benefit)
                  
                  
                  (346
                  )
                  
                  
                  205
                  
                  
                  
                  (184
                  )
                  
                  
                  580Income
      tax expense (benefit)
                  
                  
                  (48
                  )
                  
                  
                  46
                  
                  
                  
                  (28
                  )
                  
                  
                  149Net
      income (loss)
                  
                  $
                  (298
                  )
                  
                  $
                  159
                  
                  
                  $
                  (156
                  )
                  
                  $
                  431Net
      income (loss) per share- basic and diluted
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.03
                  
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.07The
      accompanying notes are an integral part of these
    statements.
  2
 Table of Contents
 MAGYAR
      BANCORP, INC. AND SUBSIDIARYConsolidated
      Statement of Changes in Stockholders' EquitySix
      Months Ended March 31, 2008(In
      Thousands, Except for Share Amounts)(Unaudited)AccumulatedCommon Stock
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  OtherShares
                  
                  
                  Par
                  
                  
                  Paid-In
                  
                  
                  Treasury
                  
                  
                  Unearned
                  
                  
                  Retained
                  
                  
                  ComprehensiveOutstanding
                  
                  
                  Value
                  
                  
                  Capital
                  
                  
                  Stock
                  
                  
                  ESOP Shares
                  
                  
                  Earnings
                  
                  
                  Income/(Loss)
                  
                  
                  TotalBalance,
      September 30, 2007
                  
                  
                  5,798,942
                  
                  
                  $
                  59
                  
                  
                  $
                  26,082
                  
                  
                  $
                  (1,740
                  )
                  
                  $
                  (1,845
                  )
                  
                  $
                  25,717
                  
                  
                  $
                  (80
                  )
                  
                  $
                  48,193Cumulative
      adjustment for adoption of FIN 48
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  603
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      October 1, 2007 as revised
                  
                  
                  5,798,942
                  
                  
                  
                  59
                  
                  
                  
                  26,082
                  
                  
                  
                  (1,740
                  )
                  
                  
                  (1,845
                  )
                  
                  
                  26,320
                  
                  
                  
                  (80
                  )
                  
                  $
                  48,796Comprehensive
      incomeNet
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (156
                  )
                  
                  
                  -
                  
                  
                  
                  (156
                  )Other
      comprehensive income, net ofreclassification
      adjustments and taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  628
                  
                  
                  
                  628Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  472Purchase
      of treasury stock
                  
                  
                  (29,527
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (306
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (306
                  )Treasury
      stock used for restricted stock plan
                  
                  
                  20,696
                  
                  
                  
                  
                  
                  
                  
                  (301
                  )
                  
                  
                  280
                  
                  
                  
                  
                  
                  
                  
                  21
                  
                  
                  
                  
                  
                  
                  
                  -Allocation
      of ESOP stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (22
                  )
                  
                  
                  -
                  
                  
                  
                  158
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  136Stock-based
      compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  231
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  231Balance,
      March 31, 2008
                  
                  
                  5,790,111
                  
                  
                  $
                  59
                  
                  
                  $
                  25,990
                  
                  
                  $
                  (1,766
                  )
                  
                  $
                  (1,687
                  )
                  
                  $
                  26,185
                  
                  
                  $
                  548
                  
                  
                  $
                  49,329The
      accompanying notes are an integral part of this
  statement.
   3
 Table of Contents
  MAGYAR
      BANCORP, INC. AND SUBSIDIARYConsolidated
      Statements of Cash Flows(In
      Thousands)For
      the Six Months EndedMarch 31,2008
                  
                  
                  2007UnauditedOperating
      activitiesNet
      (loss) income
                  
                  $
                  (156
                  )
                  
                  $
                  431Adjustment
      to reconcile net income (loss) to net cash used inoperating
      activitiesDepreciation
      expense
                  
                  
                  578
                  
                  
                  
                  563Premium
      amortization on investment securities, net
                  
                  
                  23
                  
                  
                  
                  75Provision
      for loan losses
                  
                  
                  614
                  
                  
                  
                  277Gains
      on sale of loans
                  
                  
                  -
                  
                  
                  
                  (12
                  )Losses
      on sale of investment securities
                  
                  
                  19
                  
                  
                  
                  -Losses
      on the sale of other real estate owned
                  
                  
                  88
                  
                  
                  
                  -ESOP
      compensation expense
                  
                  
                  136
                  
                  
                  
                  214Stock-based
      compensation expense
                  
                  
                  231
                  
                  
                  
                  -Deferred
      income tax provision
                  
                  
                  (202
                  )
                  
                  
                  -Decrease
      (increase) in accrued interest receivable
                  
                  
                  215
                  
                  
                  
                  (110
                  )Increase
      in bank owned life insurance
                  
                  
                  (210
                  )
                  
                  
                  (188
                  )Increase
      in other assets
                  
                  
                  (1,019
                  )
                  
                  
                  (292
                  )Decrease
      in accrued interest payable
                  
                  
                  (429
                  )
                  
                  
                  (257
                  )Decrease
      in accounts payable and other liabilities
                  
                  
                  (219
                  )
                  
                  
                  (1,413
                  )Net
      cash used in operating activities
                  
                  
                  (331
                  )
                  
                  
                  (712
                  )Investing
      activitiesNet
      increase in loans receivable
                  
                  
                  (19,009
                  )
                  
                  
                  (30,710
                  )Purchases
      of investment securities available for sale
                  
                  
                  (26,094
                  )
                  
                  
                  (6,685
                  )Sales
      of investment securities held to maturity
                  
                  
                  2,321
                  
                  
                  
                  -Sales
      of investment securities available for sale
                  
                  
                  2,825
                  
                  
                  
                  142Proceeds
      from maturities/calls of investment securities held to
      maturity
                  
                  
                  2,005
                  
                  
                  
                  -Principal
      repayments on investment securities held to maturity
                  
                  
                  2,955
                  
                  
                  
                  3,788Principal
      repayments on investment securities available for sale
                  
                  
                  4,830
                  
                  
                  
                  1,635Purchases
      of premises and equipment
                  
                  
                  (159
                  )
                  
                  
                  (1,740
                  )Investment
      in other real estate owned
                  
                  
                  (147
                  )
                  
                  
                  -Proceeds
      from the sale of other real estate owned
                  
                  
                  1,158
                  
                  
                  
                  -Purchase
      of Federal Home Loan Bank stock
                  
                  
                  (1,452
                  )
                  
                  
                  (543
                  )Net
      cash used in investing activities
                  
                  
                  (30,767
                  )
                  
                  
                  (34,113
                  )Financing
      activitiesNet
      (decrease) increase in deposits
                  
                  
                  (6,849
                  )
                  
                  
                  22,991Stock
      compensation tax benefit
                  
                  
                  102
                  
                  
                  
                  12Net
      decrease (increase) in escrowed funds
                  
                  
                  85
                  
                  
                  
                  (146
                  )Proceeds
      from long-term advances
                  
                  
                  12,959
                  
                  
                  
                  2,228Repayments
      of long-term advances
                  
                  
                  (506
                  )
                  
                  
                  (1,083
                  )Proceeds
      of short-term advances
                  
                  
                  19,825
                  
                  
                  
                  10,925Proceeds
      of securities sold under agreements to repurchase
                  
                  
                  5,000
                  
                  
                  
                  -Purchase
      of treasury stock
                  
                  
                  (306
                  )
                  
                  
                  -Net
      cash provided by financing activities
                  
                  
                  30,310
                  
                  
                  
                  34,927Net
      (decrease) increase in cash and cash equivalents
                  
                  
                  (788
                  )
                  
                  
                  102Cash
      and cash equivalents, beginning of period
                  
                  
                  5,233
                  
                  
                  
                  6,017Cash
      and cash equivalents, end of period
                  
                  $
                  4,445
                  
                  
                  $
                  6,119Supplemental
      disclosures of cash flow informationCash
      paid forInterest
                  
                  $
                  8,182
                  
                  
                  $
                  7,604Income
      taxes
                  
                  
                  121
                  
                  
                  $
                  414Non-cash
      investing activitiesReal
      estate acquired in full satisfaction of loans in
    foreclosure
                  
                  $
                  4,000
                  
                  
                  
                  -The
      accompanying notes are an integral part of these
    statements.




4
 Table of Contents


MAGYAR
BANCORP, INC. AND SUBSIDIARY


Notes to
Consolidated Financial Statements


(Unaudited)








NOTE A -
ORGANIZATION





Magyar
      Bancorp, Inc. (the “Company”) was organized on January 23, 2006 to serve
      as the mid-tier stock holding company of Magyar Bank (the “Bank”). In
      connection with the organization of the Company, 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
      holding 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.





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 of common
      stock in the Company’s initial public offering 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.





Three
      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. MagBank Investment Company, a New Jersey corporation,
      operates as an investment holding company. The MagBank Investment Company
      meets the requirements to elect New Jersey Investment Company status and
      therefore is subject to a New Jersey state tax rate of 3.6% compared with
      a 9.0% corporate business tax rate for New Jersey
      corporations.





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, Hungaria Urban Renewal, LLC, and MagBank Investment
Company. 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.





Operating
results for the six months ended March 31, 2008 are not necessarily indicative
of the results that may be expected for the year ending September 30, 2008.The
September 30, 2007 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





5
 Table of Contents





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-
RECENT ACCOUNTING PRONOUNCEMENTS





The
Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes, on October 1, 2007. Previously, the Company had accounted for tax
contingencies in accordance with Statement of Financial Accounting Standards 5,
Accounting for
Contingencies. As required by Interpretation 48, which clarifies
Statement 109, Accounting for
Income Taxes, the Company recognizes the financial statement benefit of a
tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply.




The
Company applied Interpretation 48 to all tax positions for which the statute of
limitations remained open. The adoption of Interpretation 48 did not have a
material impact on the results from operations or financial condition of the
Company (refer to “Note L - Income Taxes”).




NOTE D -
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 E -
EARNINGS PER SHARE





Basic
earnings per share for the three and six months ended March 31, 2008 was
calculated by dividing net income by the weighted-average number of shares
outstanding for the period. Stock options and restricted stock awards were
anti-dilutive for the six months ended March 31, 2008 and 2007. The following
table shows the company’s earnings per share for the periods
presented:





For
      the Three Months
              
              
              For
      the Six MonthsEnded
      March 31,
              
              
              Ended
      March 31,2008
              
              2007
              
              
              2008
              
              2007(In
      thousands except for per share data)Income
      (loss) applicable to common shares
              
              $
              (298
              )
              
              $
              159
              
              
              $
              (156
              )
              
              $
              431Weighted
      average number of common sharesoutstanding
      - basic
              
              
              5,800
              
              
              
              5,924
              
              
              
              5,805
              
              
              
              5,924Stock
      options and restricted stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Weighted
      average number of common sharesand
      common share equivalents - diluted
              
              
              5,800
              
              
              
              5,924
              
              
              
              5,805
              
              
              
              5,924Basic
      (loss) earnings per share
              
              $
              (0.05
              )
              
              $
              0.03
              
              
              $
              (0.03
              )
              
              $
              0.07Diluted
      (loss) earnings per share
              
              $
              (0.05
              )
              
              $
              0.03
              
              
              $
              (0.03
              )
              
              $
              0.07





6
 Table of Contents





Options
to purchase 217,826 shares of common stock at a weighted average of $14.61 were
outstanding and not included in the computation of diluted loss per share for
the three months ended March 31, 2008 because the option price was greater than
the average market price during the period. Options to purchase 217,826 shares
of common stock at an average price of $14.61 were outstanding and not included
in the computation of diluted earnings per share for the three months ended
March 31, 2007 because the option price was greater than the average market
price during the period.





Options
to purchase 217,826 shares of common stock at a weighted average of $14.61 were
outstanding and not included in the computation of diluted loss per share for
the six months ended March 31, 2008 because the option price was greater than
the average market price during the period. Options to purchase 217,826 shares
of common stock at an average price of $14.61 were outstanding and not included
in the computation of diluted earnings per share for the six months ended March
31, 2007 because the option price was greater than the average market price
during the period.





NOTE F –
STOCK-BASED COMPENSATION





The
Company accounts for its share-based compensation in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based
Payments.” SFAS 123 (R) requires that compensation cost relating to share-based
payment transactions be recognized in financial statements. The cost is measured
based on the fair value of the equity or liability instruments issued. SFAS
No. 123R also requires the Company to realize as a financing cash flow
rather than an operating cash flow, as previously required, the benefits of
realized tax deductions in excess of previously recognized tax benefits on
compensation expense. In accordance with SEC Staff Accounting Bulletin (“SAB”)
No. 107, the Company classified share-based compensation for employees and
outside directors within “compensation and employee benefits” in the
consolidated statement of operations to correspond with the same line item as
the cash compensation paid.





Stock
options generally vest over a five-year service period. The strike price for all
options was determined by the market price of the common stock on the date the
options were granted. Management recognizes compensation expense for all option
grants over the awards’ respective requisite service periods. The fair values of
all option grants were estimated using the Black-Scholes option-pricing model.
Since there is limited historical information on the volatility of the Company’s
stock, management also considered the average volatilities of similar entities
for an appropriate period in determining the assumed volatility rate used in the
estimation of fair value. Management estimated the expected life of the options
using the simplified method allowed under Staff Accounting Bulletin (“SAB”) 107
and 110. The 7-year Treasury yield in effect at the time of the grant provides
the risk-free rate for periods within the contractual life of the option.
Management recognizes compensation expense for the fair values of these awards
on a straight-line basis over the requisite service period of the
awards.





Restricted
shares generally vest over a five- year service period on the anniversary of the
grant date. Once vested, these awards are irrevocable. The product of the number
of shares granted and the grant date market price of the Company’s common stock
determine the fair value of restricted shares under the Company’s restricted
stock plans. Management recognizes compensation expense for the fair value of
restricted shares on a straight-line basis over the requisite service
period.





The
following is a summary of the status of the Company’s stock option activity and
related information for its option plan for the six months ended March 31,
2008:





7
 Table of Contents





WeightedWeighted
              
              Average
              
              AggregateNumber
      of
              
              
              Average
              
              Remaining
              
              IntrinsicStock Options
              
              
              Exercise Price
              
              Contractual Life
              
              ValueBalance
      at September 30, 2007
              
              
              217,826
              
              
              $
              14.61Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Balance
      at March 31, 2008
              
              
              217,826
              
              
              $
              14.61
              
              8.9
      years
              
              $
              -Exercisable
      at March 31, 2008
              
              
              -
              
              
              
              -
              
              N/A
              
              
              N/A




The
following is a summary of the status of the Company’s non-vested options as of
March 31, 2008:





WeightedAverageNumber
      of
              
              
              Grant
      DateStock Options
              
              
              Fair ValueBalance
      at September 30, 2007
              
              
              217,826
              
              
              $
              3.91Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Balance
      at March 31, 2008
              
              
              217,826
              
              
              $
              3.91





The
following is a summary of the status of the Company’s restricted shares as of
September 30, 2007 and changes during the six months ended March 31,
2008:





WeightedAverageNumber
      of
              
              
              Grant
      DateStock Awards
              
              
              Fair ValueBalance
      at September 30, 2007
              
              
              103,479
              
              
              $
              14.55Granted
              
              
              1,000
              
              
              
              10.83Forfeited
              
              
              -
              
              
              
              -Balance
      at March 31, 2008
              
              
              104,479
              
              
              $
              14.51





Stock
option and stock award expenses included with compensation expense were $81,000
and $151,000, respectively, for the six months ended March 31,
2008.





The
Company completed its first stock repurchase program of 130,927 shares in
November 2007 and announced a second repurchase program of up to 5% of its
publicly-held outstanding shares of common stock, or 129,924 shares. At
March 31, 2008, the Company had repurchased a total of 154,327 shares of
its common stock at an average cost of $13.22 per share. Under the stock
repurchase program, 106,524 shares of the 129,924 shares authorized remained
available for repurchase as of March 31, 2008. The





8
 Table of Contents





Company’s
intended use of the repurchased shares is for general corporate purposes,
including the funding of awards granted under the 2006 Equity Incentive Plan. On
March 1, 2008, recipients of stock awards under the 2006 Equity Incentive Plan
were entitled to 20% of the shares awarded, or 20,696 shares. Accordingly, these
shares were distributed from the Company’s treasury stock at March 31,
2008.





The
Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of
employees of the Company and the Bank 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 that adjusts annually to
Prime (currently 7.25%) with principal and interest payable annually in equal
installments over thirty years. The loan is secured by shares of the Company’s
stock.





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 Sheets. 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 then 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 $135,000 and $175,000 for the six months
ended March 31, 2008 and 2007, respectively.





The
following table presents the components of the ESOP shares:




March
      31,2008Shares
      released for allocation
              
              
              44,807Unreleased
      shares
              
              
              173,056Total
      ESOP shares
              
              
              217,863




NOTE G -
COMPREHENSIVE INCOME





The
components of comprehensive income and the related income tax effects are as
follows (in thousands):





9
 Table of Contents





Three
      Months Ended March 31,2008
              
              
              2007Tax
              
              
              Net
      of
              
              
              
              
              
              Tax
              
              
              Net
      ofBefore
      Tax
              
              
              Benefit
              
              
              Tax
              
              
              Before
      Tax
              
              
              Benefit
              
              
              TaxAmount
              
              (Expense)
              
              Amount
              
              
              Amount
              
              (Expense)
              
              Amount(Unaudited)Unrealized
      holding gains arisingduring
      period on:Available-for-sale
      investments
              
              $
              83
              
              
              $
              (32
              )
              
              $
              51
              
              
              $
              120
              
              
              $
              (44
              )
              
              $
              76Less
      reclassification adjustment forlosses
      realized in net income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      rate derivatives
              
              
              516
              
              
              
              (206
              )
              
              
              310
              
              
              
              17
              
              
              
              (53
              )
              
              
              (36
              )Other
      comprehensive income, net
              
              $
              599
              
              
              $
              (238
              )
              
              $
              361
              
              
              $
              137
              
              
              $
              (97
              )
              
              $
              40
  Six
      Months Ended March 31,2008
              
              
              2007Tax
              
              
              Net
      of
              
              
              
              
              
              
              Tax
              
              
              Net
      ofBefore
      Tax
              
              
              Benefit
              
              
              Tax
              
              
              Before
      Tax
              
              
              Benefit
              
              
              TaxAmount
              
              (Expense)
              
              Amount
              
              
              Amount
              
              (Expense)
              
              Amount(Unaudited)Unrealized
      holding gains arisingduring
      period on:Available-for-sale
      investments
              
              $
              139
              
              
              $
              (42
              )
              
              $
              97
              
              
              $
              177
              
              
              $
              (64
              )
              
              $
              113Less
      reclassification adjustment forlosses
      realized in net income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      rate derivatives
              
              
              884
              
              
              
              (353
              )
              
              
              531
              
              
              
              (15
              )
              
              
              (53
              )
              
              
              (68
              )Other
      comprehensive income, net
              
              $
              1,023
              
              
              $
              (395
              )
              
              $
              628
              
              
              $
              162
              
              
              $
              (117
              )
              
              $
              45











10
 Table of Contents


NOTE H -
INVESTMENT SECURITIES
 
 The
following table sets forth the composition of our investment securities
portfolio (in thousands):
  March
      31,
                    
                    
                    September
      30,2008
                    
                    
                    2007Amortized
                    
                    
                    Fair
                    
                    
                    Amortized
                    
                    
                    FairCost
                    
                    Value
                    
                    
                    Cost
                    
                    Value(Unaudited)Securities
      available for sale:U.S.
      government and agency obligations
                    
                    $
                    2,236
                    
                    
                    $
                    2,232
                    
                    
                    $
                    -
                    
                    
                    $
                    -Municipal
      bonds
                    
                    
                    3,213
                    
                    
                    
                    3,278
                    
                    
                    
                    3,214
                    
                    
                    
                    3,216Equity
      securities
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Mortgage-backed
      securities
                    
                    
                    40,414
                    
                    
                    
                    40,434
                    
                    
                    
                    24,217
                    
                    
                    
                    24,157Total
      securities available for sale
                    
                    $
                    45,863
                    
                    
                    $
                    45,944
                    
                    
                    $
                    27,431
                    
                    
                    $
                    27,373Securities
      held to maturity:U.S.
      government and agency obligations
                    
                    $
                    102
                    
                    
                    $
                    101
                    
                    
                    $
                    2,133
                    
                    
                    $
                    2,119Municipal
      bonds
                    
                    
                    132
                    
                    
                    
                    143
                    
                    
                    
                    137
                    
                    
                    
                    143Mortgage-backed
      securities
                    
                    
                    10,567
                    
                    
                    
                    10,689
                    
                    
                    
                    15,846
                    
                    
                    
                    15,695Total
      securities held to maturity
                    
                    $
                    10,801
                    
                    
                    $
                    10,933
                    
                    
                    $
                    18,116
                    
                    
                    $
                    17,957





NOTE I –
LOANS RECEIVABLE, NET





Loans
      receivable, net were comprised of the following (in
      thousands):





March
      31,
                
                
                September
      30,2008
                
                
                2007(Unaudited)One
      -to-four family residential
                
                $
                150,540
                
                
                $
                152,474Commercial
      real estate
                
                
                81,717
                
                
                
                81,275Construction
                
                
                107,609
                
                
                
                97,150Home
      equity lines of credit
                
                
                12,925
                
                
                
                12,894Commercial
      business
                
                
                33,166
                
                
                
                26,630Other
                
                
                14,220
                
                
                
                15,159Total
      loans receivable
                
                
                400,177
                
                
                
                385,582Deferred
      loan fees
                
                
                (104
                )
                
                
                (214
                )Allowance
      for loan losses
                
                
                (4,064
                )
                
                
                (3,754
                )Total
      loans receivable, net
                
                $
                396,009
                
                
                $
                381,614





At
      March 31, 2008 and September 30, 2007, non-performing loans had a total
      principal balance of $3,333,000 and $8,048,000, respectively. The amount
      of interest income not recognized on loans was $310,000 and $613,000 for
      the six-month periods ended March 31, 2008 and 2007,
      respectively.





NOTE J -
OTHER REAL ESTATE OWNED





The
      Company held $5.1 million of real estate owned properties at March 31,
      2008 and $2.2 million of real estate owned properties at September 30,
      2007. In November 2007, the Company sold real estate owned that was being
      carried at September 30, 2007 in the amount of $958,000. The Company
      recorded





11
 Table of Contents




a
      loss on the sale in the amount of $50,000. In February 2008, the Company
      foreclosed on the real estate property securing a $4.2 million
      construction loan. The real estate consists of six approved lots located
      in Rumson, NJ. In March 2008, the Company sold real estate owned that was
      being carried at September 30, 2007 in the amount of $325,000. The Company
      recorded a loss on the sale in the amount of $37,000.
              
              The
      Company did not incur any write downs on foreclosed properties during the
      six months ended March 31, 2008. There was no impairment on these
      properties at March 31, 2008. Further declines in real estate values may
      result in increased foreclosed real estate expense in the future. Routine
      holding costs are charged to expense as incurred and improvements to real
      estate owned that enhance the value of the real estate are
      capitalized.





NOTE K -
DEPOSITS





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





March
      31,
                
                
                September
      30,2008
                
                
                2007(Unaudited)Demand
      accounts
                
                $
                22,817
                
                
                $
                21,514Savings
      accounts
                
                
                34,192
                
                
                
                35,577NOW
      accounts
                
                
                33,588
                
                
                
                32,158Money
      market accounts
                
                
                78,018
                
                
                
                78,979Certificates
      of deposit
                
                
                164,476
                
                
                
                172,063Retirement
      accounts
                
                
                28,837
                
                
                
                28,486$
                361,928
                
                
                $
                368,777




NOTE L –
INCOME TAXES





The
Company adopted the provisions of FASB Interpretation 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48), on October 1, 2007. As a result of
the implementation of FIN 48, the Company recognized an increase of $416,000 in
deferred tax assets and a decrease of $187,000 in the liability for unrecognized
tax benefits, which was accounted for as a $603,000 increase to the
October 1, 2007 balance of retained earnings.




NOTE M -
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.





12
 Table of Contents





March
      31,
                
                
                September
      30,2008
                
                
                2007(Unaudited)Financial
      instruments whose contract amountsrepresent
      credit risk (in thousands)Letters
      of credit
                
                $
                1,644
                
                
                $
                1,047Unused
      line of credits
                
                
                34,615
                
                
                
                33,173Fixed
      rate loan commitments
                
                
                17,155
                
                
                
                9,765Variable
      rate loan commitments
                
                
                27,693
                
                
                
                31,446$
                81,107
                
                
                $
                75,431








13
 Table of Contents





Item
2.  Management's Discussion and Analysis or Plan of
Operation





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





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 advises
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect 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.




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




The
allowance for loan losses is the amount estimated by management as necessary to
cover credit losses in the loan portfolio both probable and reasonably estimable
at the balance sheet date. The allowance is established through the provision
for loan losses which is charged against income. In determining the allowance
for loan losses, management makes significant estimates and has identified this
policy as one of our most critical. 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. The assumptions supporting such appraisals and discounted
cash







14
 Table of Contents





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, historical loss rates, 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.




Actual
loan losses may be significantly more than the allowances we have established
which could have a material negative effect on our financial
results.





Comparison
of Financial Condition at March 31, 2008 and September 30, 2007





Total assets increased $30.8 million,
or 6.5%, to $504.0 million at March 31, 2008 from $473.2 million at September
30, 2007, represented by significant growth in net loans receivable and in
investment securities available-for-sale.





Net loans receivable increased $14.4
million, or 3.8%, to $396.0 million at March 31, 2008 from $381.6 million at
September 30, 2007. During the six months ended March 31, 2008, construction
loans led the increase in net loans receivable with growth of $10.4 million, or
10.8%, to $107.6 million from $97.2 million at September 30, 2007. Commercial
real estate and business loans increased $7.0 million, or 6.5%, to $114.9
million while loans secured by one to four family residential properties
decreased $1.9 million, or 1.2%, to $150.5 million.





At March
31, 2008, the significant loan categories in terms of the percent of total loans
were 37.6% in one-to-four family residential mortgage loans, 26.9% in
construction loans and 20.4% in commercial real estate loans. At September 30,
2007 these categories in terms of the percent of total loans were 39.5% in
one-to-four family residential mortgage loans, 25.2% in construction loans and
21.1% in commercial real estate loans. Throughout 2008 we expect to continue
with our strategy of diversifying the Company’s balance sheet with higher
concentrations in commercial and construction loans.





Total
non-performing loans decreased $4.7 million to $3.3 million at March 31, 2008
from $8.0 million at September 30, 2007. The ratio of non-performing loans to
total loans receivable was 0.83% at March 31, 2008 compared with 2.08% at
September 30, 2007. The allowance for loan losses increased $310,000 to
$4.1 million or 121.9% of non-performing loans at March 31, 2008 compared
with $3.8 million or 46.7% of non-performing loans at September 30, 2007.
Provisions for loan loss during the six months ended March 31 2008 were
$614,000. The allowance for loan losses was 1.02% of gross loans outstanding at
March 31, 2008 and 0.97% of gross loans outstanding at September 30,
2007.





Securities available-for-sale increased
$18.6 million, or 67.8%, to $45.9 million at March 31, 2008 from $27.4 million
at September 30, 2007. The increase was the result of $26.1 million in new
security purchases, offset by $4.8 million in principal amortization and $2.5
million in sales of mortgage-backed securities. In addition, securities
held-to-maturity decreased $7.3 million, or 40.4%, to $10.8 million at March 31,
2008 from $18.1 million at September 30, 2007, resulting from $3.0 million in
principal amortization, $2.3 million in sales of mortgage-backed securities, and
$2.0 million from calls of agency obligations. Management has concluded that
none of the securities have impairments that are considered other than
temporary.





Other real estate owned increased
$2.9 million during the six months to $5.1 million at March 31, 2008. The
increase resulted from the foreclosure of the property securing a $4.2 million
loan made by the Bank to Solomon Dwek, whose real estate holdings were forced
into bankruptcy in February 2007. The





15
 Table of Contents





Bank has
begun improving and marketing for sale all six approved lots located in Rumson,
NJ. The increase in other real estate owned was offset by the sale of all ten
real estate lots located in Stafford Township, NJ, totaling $1.2 million at
September 30, 2007. The sales of other real estate owned resulted in an $88,000
loss. At March 31, 2008, in addition to the Rumson, NJ properties, the Bank also
held all nine substantially vacant lots located in Little Egg Harbor, NJ. We
believe the carrying value of other real estate owned represents the Bank’s net
realizable value at March 31, 2008.





Total deposits decreased $6.8
million, or 1.9%, to $361.9 million at March 31, 2008. The decrease was
primarily due to reduced balances of certificates of deposit, which decreased
$7.6 million, or 4.4%, to $164.5 million at March 31, 2008 from $172.1 million
at September 30, 2007, and saving accounts, which decreased $1.4 million, or
3.9%, to $34.2 million at March 31, 2008 from $35.5 million at September 30,
2007. Included with the certificates of deposit at March 31, 2008 were $10.0
million of brokered deposits. Brokered deposits accounted for $6.8 million of
the decrease in time deposits during the six-month period. Other significant
changes in total deposits over the six-month period included increases in
non-interest bearing demand accounts of $1.3 million, or 6.1% to $22.8 million,
and interest-bearing NOW accounts of $1.4 million, or 4.4%, to $33.6
million.





Borrowings from the Federal Home Loan
Bank of New York increased $32.3 million, or 80.7% to $72.3 million at March 31,
2008 from $40.0 million at September 30, 2007 while securities sold under an
agreement to repurchase with Citigroup Global Markets Inc. increased $5.0
million, or 50.0%, to $15.0 million at March 31, 2008 from $10.0 million at
September 30, 2007. Proceeds from the advances were used to fund loan growth as
well as replace matured certificates of deposit during the six-month
period.





Stockholders’
equity increased $1.2 million, or 2.5%, to $49.4 million at March 31, 2008 from
$48.2 million at September 30, 2007. The increase was primarily attributable to
the implementation of FIN 48, which resulted in an increase of $603,000 to the
beginning balance of retained earnings. In addition, accumulated other
comprehensive gains of $627,000 were partially offset by a net loss during the
period of $235,000 and by repurchases of 29,527 shares of Company stock totaling
$306,000 during the period.








Average Balance Sheets for the Three
and Six Months Ended March 31, 2008 and 2007





The table
on the following page presents certain information regarding Magyar Bancorp,
Inc.’s financial condition and net interest income for the three and six months
ended March 31, 2008 and 2007. The table presents the annualized average yield
on interest-earning assets and the annualized average cost of interest-bearing
liabilities. We derived the yields and costs by dividing annualized income or
expense by the average balance of interest-earning assets and interest-bearing
liabilities, respectively, for the periods shown. We derived average balances
from daily balances over the periods indicated. Interest income includes fees
that we consider adjustments to yields.





16
 Table of Contents





MAGYAR
      BANCORP, INC. AND SUBSIDIARYComparative
      Average Balance Sheets(Dollars
      In Thousands)For the Three Months Ended March
      31,2008
              
              2007Average
      Balance
              
              
              InterestIncome/Expense
              
              
              Yield/Cost
              
              Average
      Balance
              
              
              InterestIncome/Expense
              
              
              Yield/Cost(Unaudited)Interest-earning
      assets:Interest-earning
      deposits
              
              $
              336
              
              
              $
              3
              
              
              
              3.00
              %
              
              $
              253
              
              
              $
              2
              
              
              
              3.21
              %Loans
      receivable, net
              
              
              392,389
              
              
              
              6,537
              
              
              
              6.68
              %
              
              
              370,537
              
              
              
              6,681
              
              
              
              7.31
              %SecuritiesTaxable
              
              
              46,292
              
              
              
              539
              
              
              
              4.67
              %
              
              
              38,624
              
              
              
              435
              
              
              
              4.57
              %Tax-exempt
      (1)
              
              
              3,348
              
              
              
              49
              
              
              
              5.92
              %
              
              
              2,957
              
              
              
              40
              
              
              
              5.49
              %FHLB
      of NY stock
              
              
              3,088
              
              
              
              62
              
              
              
              8.08
              %
              
              
              3,062
              
              
              
              56
              
              
              
              7.42
              %Total
      interest-earning assets
              
              
              445,453
              
              
              
              7,190
              
              
              
              6.47
              %
              
              
              415,433
              
              
              
              7,214
              
              
              
              7.04
              %Noninterest-earning
      assets
              
              
              44,871
              
              
              
              
              
              
              
              
              
              
              
              41,973Total
      assets
              
              $
              490,324
              
              
              
              
              
              
              
              
              
              
              $
              457,406Interest-bearing
      liabilities:Savings
      accounts (2)
              
              $
              33,958
              
              
              
              68
              
              
              
              0.81
              %
              
              $
              39,306
              
              
              
              104
              
              
              
              1.07
              %NOW
      accounts (3)
              
              
              113,151
              
              
              
              720
              
              
              
              2.55
              %
              
              
              100,079
              
              
              
              863
              
              
              
              3.50
              %Time
      deposits (4)
              
              
              192,964
              
              
              
              2,166
              
              
              
              4.50
              %
              
              
              184,558
              
              
              
              2,069
              
              
              
              4.55
              %Total
      interest-bearing deposits
              
              
              340,073
              
              
              
              2,954
              
              
              
              3.48
              %
              
              
              323,943
              
              
              
              3,036
              
              
              
              3.80
              %Borrowings
              
              
              71,917
              
              
              
              750
              
              
              
              4.18
              %
              
              
              57,290
              
              
              
              724
              
              
              
              5.13
              %Total
      interest-bearing liabilities
              
              
              411,990
              
              
              
              3,704
              
              
              
              3.61
              %
              
              
              381,233
              
              
              
              3,760
              
              
              
              4.00
              %Noninterest-bearing
      liabilities
              
              
              28,837
              
              
              
              
              
              
              
              
              
              
              
              27,441Total
      liabilities
              
              
              440,827
              
              
              
              
              
              
              
              
              
              
              
              408,674Retained
      earnings
              
              
              49,497
              
              
              
              
              
              
              
              
              
              
              
              48,732Total
      liabilities and retained earnings
              
              $
              490,324
              
              
              
              
              
              
              
              
              
              
              $
              457,406Tax-equivalent
      basis adjustment
              
              
              
              
              
              
              (17
              )
              
              
              
              
              
              
              
              
              
              
              (10
              )Net
      interest income
              
              
              
              
              
              $
              3,469
              
              
              
              
              
              
              
              
              
              
              $
              3,444Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              2.86
              %
              
              
              
              
              
              
              
              
              
              
              3.04
              %Net
      interest-earning assets
              
              $
              33,463
              
              
              
              
              
              
              
              
              
              
              $
              34,200Net
      interest margin(5)
              
              
              
              
              
              
              
              
              
              
              3.12
              %
              
              
              
              
              
              
              
              
              
              
              3.36
              %Average
      interest-earning assets to average interest-bearing
      liabilities
              
              
              108.12
              %
              
              
              
              
              
              
              
              
              
              
              108.97
              %


________________________________________(1)   Calculated
      using 34% tax rate for all periods.(2)   Includes
      passbook savings, money market passbook and club
  accounts.(3)   Includes
      interest-bearing checking and money market accounts.(4)   Includes
      certificates of deposits and individual retirement
    accounts.(5)   Calculated
      as net interest income divided by average total interest-earning
      assets.





17
 Table of Contents





MAGYAR
      BANCORP, INC. AND SUBSIDIARYComparative
      Average Balance Sheets(Dollars
      In Thousands)For the Six Months Ended March
      31,2008
              
              2007Average
      Balance
              
              
              Interest
      Income/Expense
              
              
              Yield/Cost
              
              AverageBalance
              
              
              InterestIncome/Expense
              
              
              Yield/Cost(Unaudited)Interest-earning
      assets:Interest-earning
      deposits
              
              $
              271
              
              
              $
              5
              
              
              
              3.66
              %
              
              $
              243
              
              
              $
              6
              
              
              
              4.95
              %Loans
      receivable, net
              
              
              389,282
              
              
              
              13,462
              
              
              
              6.90
              %
              
              
              363,764
              
              
              
              13,197
              
              
              
              7.28
              %SecuritiesTaxable
              
              
              45,093
              
              
              
              1,141
              
              
              
              5.04
              %
              
              
              38,966
              
              
              
              850
              
              
              
              4.37
              %Tax-exempt
      (1)
              
              
              3,356
              
              
              
              99
              
              
              
              5.88
              %
              
              
              2,572
              
              
              
              68
              
              
              
              5.30
              %FHLB
      of NY stock
              
              
              2,828
              
              
              
              114
              
              
              
              8.09
              %
              
              
              2,907
              
              
              
              100
              
              
              
              6.90
              %Total
      interest-earning assets
              
              
              440,830
              
              
              
              14,821
              
              
              
              6.71
              %
              
              
              408,452
              
              
              
              14,221
              
              
              
              6.98
              %Noninterest-earning
      assets
              
              
              44,189
              
              
              
              
              
              
              
              
              
              
              
              41,499Total
      assets
              
              $
              485,019
              
              
              
              
              
              
              
              
              
              
              $
              449,951Interest-bearing
      liabilities:Savings
      accounts (2)
              
              $
              34,405
              
              
              $
              152
              
              
              
              0.88
              %
              
              $
              40,075
              
              
              $
              217
              
              
              
              1.09
              %NOW
      accounts (3)
              
              
              112,896
              
              
              
              1,665
              
              
              
              2.94
              %
              
              
              96,560
              
              
              
              1,687
              
              
              
              3.50
              %Time
      deposits (4)
              
              
              195,210
              
              
              
              4,520
              
              
              
              4.62
              %
              
              
              183,100
              
              
              
              4,076
              
              
              
              4.46
              %Total
      interest-bearing deposits
              
              
              342,511
              
              
              
              6,337
              
              
              
              3.69
              %
              
              
              319,735
              
              
              
              5,980
              
              
              
              3.75
              %Borrowings
              
              
              64,264
              
              
              
              1,416
              
              
              
              4.40
              %
              
              
              53,853
              
              
              
              1,367
              
              
              
              5.09
              %Total
      interest-bearing liabilities
              
              
              406,775
              
              
              
              7,753
              
              
              
              3.80
              %
              
              
              373,588
              
              
              
              7,347
              
              
              
              3.94
              %Noninterest-bearing
      liabilities
              
              
              29,327
              
              
              
              
              
              
              
              
              
              
              
              27,806Total
      liabilities
              
              
              436,102
              
              
              
              
              
              
              
              
              
              
              
              401,394Retained
      earnings
              
              
              48,917
              
              
              
              
              
              
              
              
              
              
              
              48,557Total
      liabilities and retained earnings
              
              $
              485,019
              
              
              
              
              
              
              
              
              
              
              $
              449,951Tax-equivalent
      basis adjustment
              
              
              
              
              
              
              (34
              )
              
              
              
              
              
              
              
              
              
              
              (17
              )Net
      interest income
              
              
              
              
              
              $
              7,034
              
              
              
              
              
              
              
              
              
              
              $
              6,857Interest
      rate spread
              
              
              
              
              
              
              
              
              
              
              2.91
              %
              
              
              
              
              
              
              
              
              
              
              3.04
              %Net
      interest-earning assets
              
              $
              34,055
              
              
              
              
              
              
              
              
              
              
              $
              34,864Net
      interest margin(5)
              
              
              
              
              
              
              
              
              
              
              3.18
              %
              
              
              
              
              
              
              
              
              
              
              3.37
              %Average
      interest-earning assets to average interest-bearing
      liabilities
              
              
              108.37
              %
              
              
              
              
              
              
              
              
              
              
              109.33
              %


_____________________________(1)   Calculated
      using 34% tax rate for all periods.(2)   Includes
      passbook savings, money market passbook and club
  accounts.(3)   Includes
      interest-bearing checking and money market accounts.(4)   Includes
      certificates of deposits and individual retirement
    accounts.(5)   Calculated
      as net interest income divided by average total interest-earning
      assets.





18
 Table of Contents





Comparison
of Operating Results for the Three Months Ended March 31, 2008 and
2007





Net Income
(Loss). The Company recorded a net loss of $298,000 for the three months
ended March 31, 2008. Net income decreased $457,000 from net income of $159,000
for the three months ended March 31, 2007.





Net Interest and
Dividend Income. Net interest and dividend income increased
$25,000, or 0.7%, to $3.5 million for the three months ended March 31, 2008
from $3.4 million for the three months ended March 31, 2007. Total interest
and dividend income decreased $31,000 to $7.2 million for the three-month period
ended March 31, 2008 while total interest expense decreased $56,000 to $3.7
million from the same three-month period one year earlier. For the comparison
period our interest rate spread decreased 18 basis points to 2.86% from
3.04%.





Interest Income.The decrease ininterest income of
$31,000, or 0.4%, to $7.2 million for the three months ended March 31, 2008 was
primarily due to a decrease in the overall yield of interest-bearing assets to
6.47% from 7.04%, partially offset by an increase in the average balance of
interest-earning assets of $30.0 million to $445.5 million from $415.4 million.
Interest earned on loans decreased to $6.5 million for the three months ended
March 31, 2008 from $6.7 million for the prior year period. The decrease
reflected a 63 basis point decrease in the average yield on such loans to 6.68%
from 7.31%, partially offset by a $21.9 million, or 5.9%, increase in the
average balance of loans. The decrease in yield between the two periods was due
primarily to adjustable-rate loans that are tied to the Prime rate, which fell
300 basis points to 5.25% by March 31, 2008 from 8.25% at March 31,
2007.





Interest
earned on our investment securities, excluding Federal Home Loan Bank of New
York stock, increased $113,000, or 23.8%, due to an $8.1 million, or 19.4%,
increase in the average balance of such securities as well as an increase in the
average yield on such securities of 12 basis points to 4.75% for the three
months ended March 31, 2008 from 4.64% for the three months ended March 31,
2007. The increased average balance of our investment securities reflected
additional investment during the first half of fiscal 2008 and the reinvestment
of proceeds from principal amortizations.





Interest
Expense.Interest expense decreased $56,000, or 1.5%, to $3.7
million for the three months ended March 31, 2008 from $3.8 million for the
three months ended March 31, 2007. The decrease in interest expense was
primarily due to a 39 basis point decrease in the average cost of such
liabilities to 3.61% from 4.00%, partially offset by an increase in the average
balances of interest-bearing liabilities of $30.8 million, or 8.1%, to $412.0
million from $381.2 million.





The
average balance of interest bearing deposits increased to $340.1 million from
$323.9 million while the average cost of such deposits decreased to 3.48% from
3.80% in the lower market interest rate environment. As a result, interest paid
on deposits remained unchanged at $3.0 million for the three months ended March
31, 2008 and 2007. Interest paid on advances and securities sold under
agreements to repurchase increased to $750,000 for the three months ended March
31, 2008 from $724,000 for the prior year period. An increase in the average
balance of such advances to $71.9 million from $57.2 million was largely offset
by a 95 basis point decrease in the average cost of advances and securities sold
under agreements to repurchase to 4.18% for the three months ended March 31,
2008 from 5.13% 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 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 recorded a provision of $391,000 for





19
 Table of Contents





the three
months ended March 31, 2008 compared to a provision of $110,000 for the prior
year period. The increase in the provision was due primarily to the overall
growth of the loan portfolio and the inherent risks within that growth,
specifically the increase in the proportion of construction and commercial 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.




Other Income.Non-interest income increased $2,000, or 0.6%, to $321,000 for the three
months ended March 31, 2008 from $319,000 for the three months ended March 31,
2007. The increase reflected an increase in service charges and other operating
income of $38,000 and $30,000, respectively. The increase in service charges was
due to higher levels of loan prepayment penalties and service charges related to
the Bank’s courtesy overdraft program. The increase in other operating income
was primarily due to commissions received from the sales of non-deposit
investment products, which the Bank began offering in 2008. Increases in other
income were offset by a $37,000 loss on the sale of $325,000 in other real
estate owned and a $19,000 loss on the sale of $5.2 million in investment
securities during the three months ended March 31, 2008 compared to the prior
year period.





Other Expenses.Non-interest expense increased to $3.7 million for the three months ended
March 31, 2008 from $3.4 million for the three months ended March 31,
2007.





Compensation
and employee benefits increased $281,000, or 14.3% to $2.2 million for the three
months ended March 31, 2008 from $2.0 million for the three months ended March
31, 2007. Stock award and stock option expenses related to the Magyar Bancorp,
Inc. 2006 Equity Incentive Plan accounted for $78,000 of the increase in the
current year period. The increase also reflected staff additions in conjunction
with the opening of our fifth branch office in February 2007, as well as normal
merit increases and increases in employee benefit costs.





The
higher non-interest expense also was due to occupancy and professional expenses,
which increased $39,000, or 6.3%, to $656,000 and $41,000, or 30.8%, to $174,000
for the three months ended March 31, 2008 from $617,000 and $133,000,
respectively, for the prior year period. The increase in occupancy expenses
primarily reflected higher operating costs of the Bank’s fifth branch office
while the increase in professional expenses was due to higher audit
fees.





Other
expenses decreased $74,000, or 13.9%, to $457,000 for the three months ended
March 31, 2008 from $531,000 for the same period last year primarily due to
lower expenses associated with the Company’s annual shareholder meeting and
non-performing loans described above, partially offset by higher Federal Deposit
Insurance Company assessments. The FDIC substantially increased its assessment
rate for all insured banks in an effort to increase its reserve
ratio.





Income Tax
(Benefit) Expense. The Company recognized anincome tax benefit of
$48,000 for the three months ended March 31, 2008 compared with
$46,000 of income tax expense for the three months ended March 31, 2007.
The effective tax rate was 13.9% and 22.4% for the three month periods ended
March 31, 2008 and 2007, respectively. The difference in the effective tax rate
in 2008 as compared to 2007 was primarily a result of the relative percentage of
the permanent differences, such as income derived from tax-exempt municipal
bonds and increases in the cash surrender value of bank owned life insurance, as
compared to pretax income.





20
 Table of Contents





Comparison
of Operating Results for the Six Months Ended March 31, 2008 and
2007





Net Income
(Loss).The Company recorded a net loss of $156,000 for the six months
ended March 31, 2008. Net income decreased $587,000 from net income of $431,000
for the six months ended March 31, 2007.





Net Interest and
Dividend Income. Net interest and dividend income increased
$177,000, or 2.6%, to $7.0 million for the six months ended March 31, 2008
from $6.9 million for the six months ended March 31, 2007. Total interest
and dividend income increased $583,000 to $14.8 million for the six-month period
ended March 31, 2008 while total interest expense increased $406,000 to $7.8
million for the same six-month period. For the comparison period our interest
rate spread decreased 13 basis points to 2.91% from 3.04%.





Interest Income.Interest income increased $583,000, or 4.1%, to $14.8 million for the six
months ended March 31, 2008 from $14.2 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 $32.4 million to $440.8 million from
$408.5 million, partially offset by a decrease of 27 basis points in the average
yield on such assets to 6.71% from 6.98%. Interest income on loans increased
2.0% to $13.5 million for the six months ended March 31, 2008 from $13.2 million
for the prior year period, reflecting a $25.5 million, or 7.0%, increase in the
average balance of loans, partially offset by a 38 basis point decrease in the
average yield on such loans to 6.90% from 7.28%. The decline in yield on loans
reflected an overall lower interest rate environment for commercial business,
commercial real estate and construction loans.





Interest
earned on investment securities, excluding Federal Home Loan Bank of New York
stock, increased 33.5% to $1.2 million for the six month period ended March 31,
2008 from $918,000 a year earlier. An increase in the average balance of such
securities of $6.9 million to $48.4 million from $41.5 million was partially
offset by a 67 basis point increase in the average yield on investment
securities to 5.10% from 4.43%. The increased average balance of our investment
securities reflected the more favorable spreads available on such investments as
compared with the prior year period when the interest yield curve was either
flat or inverted.





Interest Expense.Interest expense increased $406,000, or 5.5%, to $7.8 million for the six
months ended March 31, 2008 from $7.3 million for the six months ended March 31,
2007. The increase in interest expense was due to a $33.2 million, or 8.9%,
increase in the average balance of interest-bearing liabilities to $406.8
million from $373.6 million, partially offset by a lower average cost of such
liabilities that decreased to 3.80% from 3.94% in the lower interest rate
environment.





The
average balance of interest bearing deposits increased $22.8 million to $342.5
million for the six months ended March 31, 2008 from $319.7 million for the same
period last year while the average cost of such deposits decreased 6 basis
points to 3.69% from 3.75%. This resulted in a 6.0% increase in interest paid on
deposits to $6.3 million from $6.0 million for the six months ended March 31,
2008 compared to the same period ended March 31, 2007. Interest paid on advances
and securities sold under agreements to repurchase remained unchanged at $1.4
million for the six months ended March 31, 2008 and 2007. The increase in
advance interest expense was due to an increase in the average balance of such
advances to $64.3 million from $53.9 million combined with a 69 basis point
decrease in the average cost of advances and securities sold under agreements to
repurchase to 4.40% for the six months ended March 31, 2008 from 5.09% for the
prior year period.  The proceeds from the increase in the balance of
deposits and advances were used to fund the increase in loans during the
period.





Provision for
Loan Losses. Management made a provision of $614,000 for the six months
ended March 31, 2008 compared to a $277,000 provision for the prior year period.
The increase in the provision was due primarily to the overall growth of the
loan portfolio and the inherent risks within that growth, specifically the
increase in the proportion of construction and commercial loans in our
portfolio. The





21
 Table of Contents





allowance
for loan losses was $4.1 million, or 1.02% of gross loans outstanding at March
31, 2008, as compared to $4.3 million, or 1.12% of gross loans outstanding at
March 31, 2007.





Other Income.Non-interest income increased $9,000 to $661,000 for the six months ended
March 31, 2008 from $652,000 for the six months ended March 31, 2007. The
increase reflected an increase in service charges and other operating income of
$106,000 and $22,000, respectively. The increase in service charges was due to
higher levels of loan prepayment penalties and service charges related to the
Bank’s courtesy overdraft program. The increase in other operating income was
primarily due to commissions received from the sales of non-deposit investment
products, which the Bank began offering in fiscal 2008. Increases in other
income were offset by a $88,000 loss on the sale of $1.3 million in other real
estate owned and a $19,000 loss on the sale of $5.2 million in investment
securities for the six months ended March 31, 2008 compared to the prior
six-month period.





Other Expenses.Non-interest expense increased $613,000 to $7.3 million for the six
months ended March 31, 2008 from $6.7 million for the six months ended March 31,
2007.





Compensation
and employee benefits rose 13.2% or $504,000 to $4.3 million during the
six-month period ended March 31, 2008 from $3.8 million during the six-month
period ended March 31, 2007. Stock award and stock option expenses related to
the Magyar Bancorp, Inc. 2006 Equity Incentive Plan accounted for $193,000 of
the increase in the current year period. The increase also reflected staff
additions in conjunction with the opening of our fifth branch office in February
2007, as well as normal merit increases and increases in employee benefit
costs.





The
higher non-interest expense also was due to occupancy and professional expenses,
which increased $109,000, or 9.0%, to $1.3 million and $35,000, or 12.4%, to
$317,000 for the six months ended March 31, 2008 from $1.2 million and $282,000,
respectively, for the prior year period. The increase in occupancy expenses
primarily reflected higher operating costs of the Bank’s fifth branch office
while the increase in professional expenses was due to higher audit
fees.





Other
expenses decreased $51,000, or 5.3%, to $909,000 for the six months ended March
31, 2008 from $960,000 for the same period last year primarily due to lower
expenses associated with the Company’s annual shareholder meeting and
non-performing loans described above, partially offset by higher Federal Deposit
Insurance Company assessments.





Income Tax
Expense (Benefit). The Company recognized anincome tax benefit of
$28,000 for the six months ended March 31, 2008 compared with a
$149,000 income tax expense for the six months ended March 31, 2007. The
effective tax rate was 15.2% and 25.7% for the six month periods ended March 31,
2008 and 2007, respectively. The difference in the effective tax rate in 2008 as
compared to 2007 was primarily a result of the relative percentage of the
permanent differences, such as such as income derived from tax-exempt municipal
bonds and increases in the cash surrender value of bank owned life insurance, as
compared to pretax income.








New
Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” This Statement defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. This
Statement applies to other accounting pronouncements that require or permit fair
value measurements, but does not require any new fair value
measurements. The Statement is effective for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years (as of
October 1, 2008 for the Company). The Company is evaluating the effect
of SFAS No. 157 on its financial statements.





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 Table of Contents





At its
September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final
consensus on Issue 06-04, “Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.” In accordance with the EITF consensus, an agreement by an
employer to share a portion of the proceeds of a life insurance policy with an
employee during the postretirement period is a postretirement benefit
arrangement required to be accounted for under SFAS No. 106 and, therefore, a
liability for the postretirement obligation must be recognized under SFAS No.
106 if the benefit is offered under an arrangement that constitutes a plan or
under APB No. 12 if it is not part of a plan. The provisions of Issue 06-04 are
to be applied through either a cumulative –effect adjustment to retained
earnings as of the beginning of the year of adoption or retrospective
application. Issue 06-04 is effective for annual or interim reporting periods
beginning after December 15, 2007 (as of October 1, 2008 for the Company). The
application of Issue 06-04 is not expected to have a material effect on the
Company’s financial position or results of operations.





At its
September 2006 meeting, the EITF reached a final consensus on Issue 06-05,
“Accounting for Purchases of
Life Insurance –Determining the Amount That Could be Realized in Accordance with
FASB Technical Bulletin No. 85-4.” Issue 06-05 concludes that in
determining the amount that could be realized under an insurance contract
accounted fro under FASB Technical Bulletin No. 85-4, “Accounting for Purchases of Life
Insurance,” the policyholder should (1) consider any additional amounts
included in the contractual terms of the policy; (2) assume the surrender value
on an individual life-by individual-life policy basis; and (3) not discount the
cash surrender value component of the amount that could be realized when
contractual restrictions on the ability to surrender a policy exist. Issue 06-05
should be adopted through either (1) a change in accounting principle through a
cumulative-effect adjustment to retained earnings as of the beginning of the
year of adoption or (2) a change in accounting principle through retrospective
application to all prior periods. Issue 06-05 is effective for fiscal years
beginning after December 15, 2006 (as of October 1, 2007 for the Company). The
application of Issue 06-05 did not have a material effect on the Company’s
financial position or results of operations.





In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” which included an amendment of FASB
Statement No. 115. Statement 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. Statement 159 is effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007, (as of October 1, 2008 for the
Company). Early adoption is permitted as of the beginning of a fiscal year
that begins on or before November 15, 2007, provided the entity also elects to
apply the provisions of FASB Statement No. 157, Fair Value Measurements. The
Company has not made an early adoption election and SFAS No. 159 is currently
under evaluation by the Company to determine the impact on the Company’s
consolidated financial statements.





The
Company adopted the provisions of FASB Interpretation 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48), on October 1, 2007. Previously, the
Company had accounted for tax contingencies in accordance with SFAS No. 5,
“Accounting for Contingencies.” As required by FIN 48, which clarifies SFAS
No. 109, “Accounting for Income Taxes,” the Company recognizes the
financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following
an audit. For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority. At the adoption date, the Company applied FIN
48 to all tax positions for which the statute of limitations remained open. As a
result of the implementation of FIN 48, the Company recognized an increase of
approximately $416,000 in deferred tax assets and a decrease of approximately
$187,000 in the liability for unrecognized tax benefits, which was accounted for
as a $603,000 increase to the October 1, 2007 balance of retained
earnings.





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 Table of Contents





In
December 2007, the FASB revised SFAS No. 141(R) “Business Combinations” to
improve the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects. To accomplish that, SFAS No. 141(R)
establishes principles and requirements for how the acquirer:  1)
Recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; 2) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and 3) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This Statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008 (as of October 1, 2009 for the Company). The Company is
evaluating the effect of SFAS No. 141(R) on its financial
statements.





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards. This Statement applies to all
entities that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. Not-for-profit organizations should continue to apply the guidance
in Accounting Research Bulletin No. 51, Consolidated Financial
Statements, before the amendments made by this Statement, and any other
applicable standards, until the Board issues interpretative guidance. This
Statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008 (as of October 1, 2009 for the
Company). The Company is evaluating the effect of SFAS No. 160 on its
financial statements.





In
December 2007, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110 (“SAB 110”). SAB 110  expresses the views
of the staff regarding the use of a "simplified" method, as discussed in SAB No.
107 ("SAB 107"), in developing an estimate of expected term of "plain vanilla"
share options in accordance with Statement of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payment. In
particular, the staff indicated in SAB 107 that it will accept a company's
election to use the simplified method, regardless of whether the company has
sufficient information to make more refined estimates of expected term. At the
time SAB 107 was issued, the staff believed that more detailed external
information about employee exercise behavior (e.g., employee exercise patterns
by industry and/or other categories of companies) would, over time, become
readily available to companies. Therefore, the staff stated in SAB 107 that it
would not expect a company to use the simplified method for share option grants
after December 31, 2007. The staff understands that such detailed information
about employee exercise behavior may not be widely available by December 31,
2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31,
2007.








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 three month period
ended March 31, 2008 in the ability of the Company and its subsidiaries to fund
their operations.




At March
31, 2008, the Company had commitments outstanding under letters of credit of
$1.6 million, commitments to originate loans of $44.8 million, and commitments
to fund undisbursed balances of





24
 Table of Contents





closed
loans and unused lines of credit of $34.6 million. There has been no
material change during the six months ended March 31, 2008 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 March
31, 2008.




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 March 31, 2008 reflected sensitivity to increases in market interest
rate movements. In an effort to reduce the anticipated negative effect on
earnings from increases in market interest rates, reverse repurchase agreements
with embedded interest rate caps of $15 million were held by the Bank at March
31, 2008.





Management
of the Company believes that there has not been a material adverse change in
market risk during the three months ended March 31, 2008.








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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 Table of Contents










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




a.)
            Not
      applicable.





b.)
            Not
      applicable.





c.)
            The
      following table presents a summary of the Company’s shares repurchased
      during the quarter ended March 31,
2008:





Remaining
      NumberTotal
      Number
              
              
              Average
              
              
              of
      Shares Thatof
      Shares
              
              
              Price
      Paid
              
              
              May
      be PurchasedPeriod
              
              Purchased
              
              
              Per
      Share
              
              
              Under
      the Plan(1)January
      1 - January 31, 2008
              
              
              8,500
              
              
              $
              10.62
              
              
              
              119,624February
      1 - February 29, 2008
              
              
              1,500
              
              
              $
              10.62
              
              
              
              118,124March
      1 - March 31, 2008
              
              
              11,600
              
              
              $
              9.98
              
              
              
              106,52421,600
              
              
              $
              10.28
  (1)
              The
      Company completed its first stock repurchase program of 130,927 shares in
      November 2007. The Company announced a second repurchase program of
      129,924 shares in November 2007, under which 23,400 shares had been
      repurchased as of March 31, 2008 at an average price of
      $10.31.







Item 3.     Defaults Upon Senior
Securities




None




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




None




Item 5.    Other
Information




a.)
            Not
      applicable.





b.)
            There
      were no material changes to the procedures by which security holders may
      recommend nominees to the Company’s Board of Directors during the period
      covered by the Form 10-QSB.










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 Table of Contents






Item6.    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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 Table of Contents








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:
      May 9, 2008
            /s/
      Elizabeth E. HanceElizabeth
      E. HancePresident
      and Chief Executive OfficerDate:
      May 9, 2008
            /s/
      Jon R. AnsariJon
      R. AnsariSenior
      Vice President and Chief Financial
Officer
















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